Supreme Court Allows Individual Fiduciary Breach Suits
The Supreme Court has expanded the rights of individual plan participants to sue for fiduciary breaches related to their 401(k) plans.
In Larue v. DeWolff, Boberg & Assocs., Inc., No. 06-856, the court held that an individual plan participant may recover damages under Section 502(a)(2) of the Employee Retirement Income Security Act (ERISA).
LaRue alleged that the value of his 401(k) plan fell $150,000 after the plan’s fiduciaries misprocessed a change form that would have switched his investments to safer vehicles. The lower court rejected LaRue’s claim, concluding that recoveries under Section 502(a)(2) must be for the benefit of the plan as a whole, not just an individual.
The Supreme Court reversed, noting that “fiduciary misconduct need not threaten the solvency of the entire plan to reduce benefits below the amount that participants would otherwise receive.” It found that “although §502(a)(2) does not provide a remedy for individual injuries distinct from plan injuries, that provision does authorize recovery for fiduciary breaches that impair the value of plan assets in a participant’s individual account.”
ERISA experts point to a concurrence penned by Justice Roberts as a potential loophole for employers. Roberts suggested that employees may be required to exhaust their administrative remedies before filing a lawsuit. “This decision, but for the Roberts concurrence, would have settled an area of law — now he has just made it more confusing,” said Karen Handorf, a lawyer who worked on a brief filed on LaRue’s behalf.
The Bottom Line. The LaRue case could significantly increase fiduciary litigation. Even if a plan as a whole suffers no significant losses, participants may now sue for fiduciary breaches that result in damage to their individual accounts. However, company attorneys will undoubtedly point to Roberts’ concurrence and argue that plaintiffs are required to exhaust their administrative remedies before filing suit.
Regardless of how things turn out, fiduciaries should be even more careful to exercise diligence in all plan activities.