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November 28, 2007 at 12:13 PM
Members of the U.S. Supreme Court are thinking about the remedies available to retirement plan members who say plan servicers failed to follow their directions.
The question came up at the court Monday, when lawyers presented arguments regarding LaRue vs. DeWolff, Boberg & Associates Inc., No. 06-0856.
James LaRue, a man who participated in a 401(k) savings plan administered by his former employer, DeWolff, Boberg & Associates Inc., Dallas, a management consulting firm, says the firm cost his 401(k) plan account $150,000 by failing to execute changes he had requested.
A federal district court and a panel of the 4th U.S. Circuit Court of Appeals both dismissed LaRue’s suit, contending that the Employee Retirement Income Security Act does not allow a plan participant to sue the administrator for breach of fiduciary duty.
LaRue’s lawyers say Section 502(a)(2) of ERISA allows plan participants to sue plan administrators in connection with allegations of breach of fiduciary duty in order to “make good to such plan any losses to the plan resulting from each such breach.”
ERISA mandates that plan administrators, servicers or fiduciaries, not the plan itself, must absorb the loss for the type of mistake that occurred in the LaRue case, according to Peter Stris, a Costa Mesa, Calif., lawyer who is representing LaRue.
To do otherwise, would “pick the pockets of the other participants” in the plan, Stris said Monday.
Thomas Gies, a Washington lawyer who was representing DeWolff, said LaRue is suing in response to personal losses, rather than the losses of the retirement plan as a whole.
One consideration “is whether Congress really intended for these individual kinds of ‘he said; she said’ claims to be brought,” Gies said. “We think not.”
The U.S. solicitor general’s office is supporting LaRue.
“We don’t think that you could rob the other accounts to pay this … participant,” Roberts said. “That would likely violate the fiduciary’s duty of loyalty to those participants, the fiduciary duty of prudence under … ERISA…. The crux of the matter here is that the plan has suffered a loss and that the appropriate remedy is against the fiduciary in his personal capacity.”
The argument by DeWolff lawyers that the only remedy under ERISA is injunctive relief is wrong, Roberts said.
Lawyers for the American Council of Life Insurers, Washington, earlier filed a brief contending that letting LaRue win “would expose ERISA fiduciaries to claims for monetary damages by plan participants based on losses allegedly suffered by individuals with respect to their benefit plan accounts.”
Eroding statutory limits on ERISA suits in that way would increase the cost of sponsoring retirement plans and, ultimately, reduce participation, the ACLI contends.
Moreover, LaRue might have profited if the fiduciary’s failure to act had protected LaRue from an unwise investment direction, the ACLI says.
