Individual participants in 401(k) retirement plans can sue to recover their losses, the Supreme Court ruled today in a case that created concern within the insurance industry.
The court ruled unanimously in LaRue v. DeWolf, 06-856, that the Employee Retirement Income Security Act does not prevent an individual account holder to sue plan administrators for breaching their fiduciary duties.
The case revolved around language in ERISA referring to recovering money for the retirement plan, rather than to an individual participant in the plan suing solely on his own behalf.
In his lead opinion for the court, Justice John Paul Stevens said that such lawsuits are permissible.
“Fiduciary misconduct need not threaten the solvency of the entire plan to reduce benefits below the amount that participants would otherwise receive,” Stevens said.
Stevens also ruled that the provision of ERISA at issue “does authorize recovery for fiduciary breaches that impair the value of plan assets in a participant’s individual account.”
The decision reverses a ruling by the 4th U.S. Circuit Court of Appeals, based in Richmond, Va.
The American Council of Life Insurers had filed a friend-of-the-court brief in the case warning that providing plan members with the authority to sue independently could “have legal and practical ramifications extending far beyond the parties to this case.”
In its brief, the ACLI warned that supporting the plaintiff “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.”
The ACLI brief further contended that “allowing erosion of the statutory limits to ERISA remedies may have significant adverse consequences for ACLI members. These include increased costs for employer-sponsored plans and a concomitant decrease in the number of employers able and willing to sponsor and administer them–thereby decreasing the number of employees participating in these plans.”