The U.S. Supreme Court issued last week its anticipated decision in LaRue v. DeWolff, 2008 Lexis 2014 (2008), holding that a 401(k) plan participant could individually sue for breach of fiduciary duty under ERISA section 502(a)(2) for losses to the participant's individual account. The tersely written opinion is much more narrowly drawn than plaintiff's counsel would have liked, as the Court did not address more problematic section 502(a)(3) claims, nor did the Court seem to expand the remedies beyond those already available, or authorize individual suits by other than 401(k) participants.
Nonetheless, the LaRue decision does depart from the language of the 1985 decision in Massachusetts Mutual Life Insurance Co. v. Russell, 473 U.S. 134, 105 S. Ct. 3085 (1985). In Russell, the Court held that ERISA did not authorize individual plan participants to assert breach of fiduciary duty claims, and that instead section 502(a)(2) was limited to claims brought on behalf of the plan as a whole. LaRue, at least in this narrow instance, allows an individual participant to sue for losses that do not affect the plan as a whole but only the plaintiff's individual account.
ERISA governs both group retirement plans and group welfare benefit plans. Plaintiff James LaRue participated in the former, a 401(k) retirement savings plan administered by his employer. ERISA suits are generally brought either under ERISA section 502(a)(1)(b) for plan benefits, section 502(a)(2) for breach of fiduciary duty causing losses to the plan, or section 502(a)(3) for other equitable relief. LaRue originally filed suit under section 502(a)(3), alleging that the plan's fiduciaries failed to carry out his directions and change his investments, thereby causing a loss to his individual account. The district court granted defendants judgment on the grounds that the monetary relief sought was not equitable relief allowed under section 502(a)(3). LaRue appealed and then asserted that he had claims under both sections 502(a)(2) and 502(a)(3). The Fourth U.S. Circuit Court of Appeals, relying on Russell, held that section 502(a)(2) only provides remedies for entire plans, not for individuals, and again rejected LaRue's argument that the relief he sought was equitable within the meaning of section 502(a)(3).
The Supreme Court reversed the Fourth Circuit and held that the "entire plan" language stated in Russell did not apply to defined contribution plans, and therefore section 502(a)(2) authorizes recovery for fiduciary breaches that impair the value of plan assets in a participant's individual account. The majority opinion focused on the fact that "defined contribution plans dominate the retirement plan scene today," and that the pension plan landscape has changed since Russell. Thus, unlike what one may read from Russell, "fiduciary misconduct need not threaten the solvency of the entire plan to reduce benefits below the amount that participants would otherwise receive," and individuals should be able to sue for losses to their individual accounts in defined contribution plans. Notably, the court stated in footnote both that section 502(a)(2) encompasses claims for "lost profits," and that defendants may have numerous defenses, including whether plaintiff followed the requirements specified by the plan in making investment directions, whether he exhausted administrative remedies, and whether he asserted his rights in a timely fashion.
The LaRue decision thus is much narrower than plaintiff counsel had desired. First, the Court did not address the section 502(a)(3) claims at all. Second, the decision should be limited to defined contribution plans, if not 401(k) plans only. Health plans and other welfare benefit plans should not be affected. Third, other than allowing claims to be asserted by individuals, it is not certain that the LaRue decision actually increases the remedies available to plaintiffs. As noted in Justice Thomas' concurring opinion, section 502(a)(2) by its language permits recovery of all plan losses caused by a fiduciary breach by restoration of those losses to the plan, and an individual account is simply one part of a much larger plan. Nonetheless, the decision does change the landscape and, while it is too early to tell whether the decision will open the floodgates to a new wave of ERISA litigation, ERISA fiduciaries and insurers of fiduciary liability risks should be ready to confront anticipated section 502(a)(2) claims.
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