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Supreme Court ERISA Decision Could Open Doors to Broader Claims and Relief

The United States Supreme Court has opened the door to broader claims and remedies for alleged breaches of fiduciary duty relating to certain pension plans. The Court on February 20 held that § 502(a)(2) of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1132(a)(2), which authorizes recovery of "any losses to the plan" and "other equitable or remedial relief," could be invoked in the context of a defined contribution (401(k)) pension plan to sue for damages to an individual plan account. LaRue v. DeWolff, Boberg & Associates, Inc., 06-856.

Mr. LaRue sued the fiduciaries of his 401(k) plan under § 502(a)(2) of ERISA to hold them liable for $150,000 in damages he claimed his plan account lost because the fiduciary allegedly misprocessed an investment change form. The federal Fourth Circuit Court of Appeals, in Richmond, said he could not recover because § 502(a)(2) only provided money damages for losses to the plan as a whole, and not to the account of only one participant.

The Supreme Court previously had ruled in a defined benefit plan context that § 502(a)(2) claims could only be brought on behalf of the plan as a whole. The opinion sidesteps that prior precedent by pointing to the intent of ERISA to ensure plans are properly administered and investment functions properly carried out and extends it to individual plan accounts. In a significant footnote, the majority of the High Court permits a claim for "lost profits" to include profits forgone because the trustee fails to purchase specific property which it was its duty to purchase.

The Court remanded the case for further proceedings. However, the Court left open the questions of whether plaintiff was required to exhaust administrative remedies before proceeding to court and whether rights were asserted in a timely fashion. Because this decision removes a barrier to potential monetary recoveries, it will likely result in an increase in litigation over plan administrative and investment issues.

We will provide a more detailed analysis of the decision at a later date.