News Briefings - Pension & Benefits

The following article was taken from the 11/10/08 issue of Pension & Benefits Week.

11/10/08 -- 401(k) plan participant's success in Supreme Court leads him nowhere

ALTHOUGH the Supreme Court provided him with a victory in his ERISA fiduciary breach action, plaintiff James LaRue has had to abandon his quest because it was not financially feasible for him to continue. Thus, LaRue was unable to capitalize on his success in the Supreme Court, which had held that an individual 401(k) plan participant's claim, based on losses that resulted when the plan administrator fails to make changes to investments in his plan account as the participant had directed, is actionable under ERISA. (LaRue v. DeWolff, Boberg & Associates, Inc. (2008, DC SC) Case No. 2:04-1747-DCN)

Background. DeWolff, Boberg & Associates, Inc. (DeWolff) was the administrator of a 401(k) plan for its current and former employees. The plan permitted participants to manage their own accounts by selecting from a menu of various investment options. LaRue had participated in this 401(k) plan since 1993. He claimed that in 2001 and 2002, he directed DeWolff to make certain changes to the investments in his plan account, but that these directions were never carried out. In 2004, LaRue sued DeWolff and the plan, claiming that DeWolff's failure to follow his directions amounted to a breach of fiduciary duty. LaRue's complaint stated that his interest in the plan had been depleted by $150,000 as a result of DeWolff's failure to follow his instructions. To recover this loss, the complaint sought equitable relief under ERISA § 502(a)(3).

The district court dismissed the case, saying that LaRue was seeking damages rather than equitable relief available under ERISA § 502(a)(3), and finding that DeWolff did not possess any disputed funds that rightly belonged to LaRue. LaRue appealed to the Fourth Circuit.

On appeal, LaRue argued that he had a cognizable claim for relief under ERISA § 502(a)(2) and (3). The Fourth Circuit noted that LaRue had raised his ERISA § 502(a)(2) argument for the first time on appeal, but nevertheless rejected it on the merits.

ERISA § 502(a)(2) provides a civil action by a participant, beneficiary, or fiduciary for appropriate relief under ERISA § 409, for fiduciary breaches. Citing Massachusetts Mutual Life Insurance Co. v. Russell (1985, S Ct) 473 US 134, which held that suits to enforce ERISA § 409 are aimed at protecting "the entire plan, rather than the rights of an individual beneficiary," the Fourth Circuit concluded that recovery must inure to the benefit of the plan as a whole, not to particular persons with rights under the plan, like LaRue, who had sought individual relief. Thus, the Fourth Circuit held that LaRue could not qualify for relief under ERISA § 502(a)(2). (See Pension & Benefits Week, 7/10/2006) The Fourth Circuit also rejected LaRue's argument that the make–whole relief he sought was "equitable" within the meaning of ERISA § 502(a)(3). LaRue then petitioned the Supreme Court.

Supreme Court action. The Supreme Court found that the Fourth Circuit had misread ERISA § 502(a)(2). Protection of the "entire plan," which the fiduciary breach provisions are intended to do, is different in the context of defined contribution plans, which "dominate the retirement plan scene today." Thus, the Court said that it was not necessary that fiduciary misconduct threaten the solvency of the entire plan to reduce benefits below the amount that participants would otherwise receive in order for a claimant to get relief under ERISA § 502(a)(2).

Further, the Court said that in Russell, the plan in question (a disability plan) provided a fixed benefit, unlike an individual account plan, and the claim there was not for relief from the reduction in the amount of the benefit, but for consequential damages from the delay in its payment. This was unlike LaRue's situation. Finally, the Court pointed to ERISA § 404(c), which exempts fiduciaries from liability from losses caused by participants' exercise of control over assets in their individual accounts. This provision would serve no purpose, the Court said, if fiduciaries never had any liability for losses in an individual account.

Accordingly, the Court vacated the Fourth Circuit's decision, and remanded the case back to the district court. See Pension & Benefits Week, 2/25/2008.

Remand and LaRue's request for withdrawal. On remand before the district court, after beginning discovery, LaRue determined that it was not financially feasible for him to continue to pursue his claim. Thus, he requested the district court to withdraw his claim and dismiss the case. LaRue further acknowledged that, with regard to the specific cause of action asserted in his complaint, the statute of limitations had run and he would effectively be prohibited from re-filing his lawsuit. Accordingly, based upon the consent of the parties, the district court dismissed LaRue's suit with prejudice, and said that each party should bear its own fees and costs.

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