U.S. Supreme Court Holds That 401(k) Participants Can Sue For Individual Relief For Breach of Fiduciary Duty
February 22, 2008
On February 20, 2008, in LaRue v. DeWolff, Boberg & Associates, Inc., the U.S. Supreme Court held that individual participants in defined contribution plans can sue for monetary relief under ERISA for alleged breaches of ERISA fiduciary duties. This ruling opens the door to claims by 401(k) plan participants who seek recovery for investment losses to their individual accounts resulting from alleged misdeeds on the part of ERISA fiduciaries.
LaRue was a participant in DeWolff’s 401(k) plan. At issue in this case was LaRue’s allegation that DeWolff breached its ERISA fiduciary duties because it failed to follow his investment instructions. LaRue claimed that DeWolff’s fiduciary breach should be remedied by payment of $150,000, the loss in value that his personal account sustained.
In its opinion, the Court focused on the fact that defined contribution plans, such as 401(k) plans, dominate today’s “retirement plan scene” and noted that “[w]hether a fiduciary breach diminishes plan assets payable to all participants and beneficiaries, or only to persons tied to particular individual accounts, it creates the kind of harms that concerned the draftsmen of [ERISA].”
It is expected that this decision will lead to an increase in the number of lawsuits filed by plan participants against employers who sponsor retirement plans. Such cases are likely to involve claims by 401(k) and defined contribution plan participants for investment losses resulting from a fiduciary’s failure to timely or properly carry out their investment instructions. Some employers may find themselves named as defendants in these lawsuits because they had, perhaps unwittingly, a fiduciary duty with respect to the administration of their retirement plan.
Employers who sponsor defined contribution pension plans can take steps to minimize their exposure to fiduciary liability by ensuring that they understand who the fiduciaries of their plans are, a question that is sometimes difficult to answer. Employers should also consider purchasing insurance to cover any losses arising from a fiduciary breach, verify that their plan documents contain workable and flexible procedures for following participants’ investment instructions, and ensure that their plans are administered in accordance with the written plan documents. Finally, employers should consider outsourcing the day-to-day administration of their plans to reliable third-party administrators who are experienced in pension plan administration, thereby possibly shifting fiduciary responsibility to that third party.
Please contact the Taft Labor and Employment attorney with whom you regularly work or any of our office locations if you have questions about this development in the law or to discuss strategies for reducing your exposure to ERISA fiduciary liability.
LaRue was a participant in DeWolff’s 401(k) plan. At issue in this case was LaRue’s allegation that DeWolff breached its ERISA fiduciary duties because it failed to follow his investment instructions. LaRue claimed that DeWolff’s fiduciary breach should be remedied by payment of $150,000, the loss in value that his personal account sustained.
In its opinion, the Court focused on the fact that defined contribution plans, such as 401(k) plans, dominate today’s “retirement plan scene” and noted that “[w]hether a fiduciary breach diminishes plan assets payable to all participants and beneficiaries, or only to persons tied to particular individual accounts, it creates the kind of harms that concerned the draftsmen of [ERISA].”
It is expected that this decision will lead to an increase in the number of lawsuits filed by plan participants against employers who sponsor retirement plans. Such cases are likely to involve claims by 401(k) and defined contribution plan participants for investment losses resulting from a fiduciary’s failure to timely or properly carry out their investment instructions. Some employers may find themselves named as defendants in these lawsuits because they had, perhaps unwittingly, a fiduciary duty with respect to the administration of their retirement plan.
Employers who sponsor defined contribution pension plans can take steps to minimize their exposure to fiduciary liability by ensuring that they understand who the fiduciaries of their plans are, a question that is sometimes difficult to answer. Employers should also consider purchasing insurance to cover any losses arising from a fiduciary breach, verify that their plan documents contain workable and flexible procedures for following participants’ investment instructions, and ensure that their plans are administered in accordance with the written plan documents. Finally, employers should consider outsourcing the day-to-day administration of their plans to reliable third-party administrators who are experienced in pension plan administration, thereby possibly shifting fiduciary responsibility to that third party.
Please contact the Taft Labor and Employment attorney with whom you regularly work or any of our office locations if you have questions about this development in the law or to discuss strategies for reducing your exposure to ERISA fiduciary liability.
