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U.S. Supreme Court Says Plan Participants Can Sue For Individual Losses Resulting From Misconduct

The U.S. Supreme Court delivered its opinion in LaRue v. DeWolff, Boberg & Associates on Wednesday, February 20, 2008, reversing a decision by the U.S. Court of Appeals for the Fourth Circuit.

James LaRue calculated that he lost approximately $150,000 when the administrator of his 401(k) plan failed to carry out investment instructions he gave in 2001 and 2002. In 2004 Mr. LaRue sued the plan administrator, arguing that the plan administrator committed a breach of fiduciary duty -- a failure to act in the best interest of plan participants -- by not following Mr. LaRue's instructions. In the lawsuit, Mr. LaRue requested that the plan compensate him for the $150,000 he lost.

The principal issue in the case was whether a plan participant could sue a plan administrator to recover losses that did not affect all or a large number of plan participants. The lower court had ruled that the Employee Retirement Income Security Act of 1974 (ERISA, the law that governs most private pensions), provides monetary damages for “the benefit of the plan as a whole, not to particular persons with rights under the plan.” On this matter, the lower court sided with the plan administrator. It ruled that Mr. LaRue could not sue, since the money he sought was for his own individual account’s losses and not to recover losses on behalf of the entire plan.

The Supreme Court decided in favor of Mr. LaRue stating that the issue is the same, “whether [Mr. LaRue’s] account includes 1% or 99% of the total assets in the plan.” Writing for the majority, Justice Stevens found that the alleged misconduct of the plan administrator fell squarely within the wrongdoings described in ERISA, and thus ERISA “authorize[s] recovery for fiduciary breaches that impair the value of plan assets in a participant’s individual account.” 

A concurring opinion by Justice Thomas and joined by Justice Scalia emphasized that the plain meaning of the law has always been that individuals like Mr. LaRue have a right to sue when their plan administrators breach their fiduciary duties.

Chief Justice Roberts wrote a concurring opinion in which Justice Kennedy joined. In his opinion, the Chief Justice invited lower courts to determine whether similar cases would be more appropriately litigated under another section of ERISA. Mr. LaRue sued the plan administrator under a section that makes plan administrators and other plan fiduciaries personally liable for losses incurred by the plan due to their misconduct. The Chief Justice suggested that instead of suing the individual plan fiduciaries, people with similar types of cases should sue the plan for benefits owed under the terms of the plan. However in Mr. LaRue's case, the terms of the plan would not have provided him with the money he lost due to the plan administrator's failure to follow his instructions.

The court did not address a second issue raised by the plaintiff – namely, whether the reimbursement Mr. LaRue sought qualifies as the “appropriate equitable relief” that ERISA allows participants to recover when a plan administrator breaches a fiduciary duty.

The lower court had ruled that the $150,000 did not qualify as the equitable relief that ERISA is intended to provide. The court made its ruling based on a Supreme Court case holding that monetary relief against a non-fiduciary to make a participant whole does not constitute equitable relief.

With this ruling Mr. LaRue is now free to pursue his case against the plan administrator in the District Court where he originally filed his lawsuit. The question of whether there was misconduct on the part of the plan administrator and the extent of the damages caused by the alleged misconduct must still be determined.

Read the Supreme Court’s ruling in this case.

Read a report on the LaRue case by the Congressional Research Service.

Read the transcript from the oral argument.

The Pension Rights Center has filed an amicus brief in support of James LaRue.

Read the lower court's ruling in this case

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