Practitioner’s Forum Discussion: LaRue v. DeWolff, Boberg
& Associates, Inc., 502 U.S. __, 128 S. Ct. 1020, 42 EBC 2857
(2008)
The following is a transcript of an informal discussion of
employee benefit practitioners held in Washington, D.C. on February
20, 2008. The topic involved the Supreme Court's decision in
LaRue that participants can sue plan fiduciaries for losses to
their individual accounts under ERISA §502(a)(2).
Discussion Participants:
Stuart M. Lewis
Buchanan Ingersoll & Rooney P.C.
Dan S. Brandenburg
Sanders, Schnabel & Brandenburg, P.C.
Annemarie G. McGavin
Buchanan Ingersoll & Rooney P.C.
Seth H. Tievsky
Ernst & Young LLP
Mr. Lewis: Today, the Supreme Court issued its ruling in the
LaRue case, in which a participant in a defined contribution
plan alleged that he provided the administrator with instructions to
change the investment of his account and the administrator failed to
carry out the participant's direction. The participant claimed that
the failure to carry out his instructions was a fiduciary breach and
that he sustained losses of approximately $150,000 to his individual
plan account as a result of the breach. The case was dismissed in the
Fourth Circuit because the participant's claims, filed under ERISA
§502(a)(2) and (3), were not claims protecting the plan, but
rather, were personal claims. The Supreme Court unanimously vacated
the Fourth Circuit's decision and remanded the case. Although the
Supreme Court has ruled in Russell [Massachusetts Mut. Life
Ins. Co. v. Russell, 473 U.S. 134 (1985)] that individuals cannot
make a fiduciary breach claim under ERISA §502(a)(2) for personal
losses, the Court determined here that the participant could recover
for losses to his plan account that result from a fiduciary breach.
The Court differentiated Russell because that case was a
disability plan under which the benefits were defined, and this case
involves a defined contribution plan. This case appears to open the
door for participant lawsuits for losses to their individual
accounts.
Mr. Tievsky: It is interesting that the Court bases part of
its decision on the “changing landscape” of employee
benefit plans. In this market, where defined contribution plans
dominate and the participant's benefit is not defined, the Court saw a
need for greater protection to the individual participant.
Mr. Lewis:Justice Thomas in his concurrence does not buy
into that argument at all. Rather than looking to changes in the
retirement plan marketplace to distinguish the Russell holding,
Thomas notes that a plain reading of the statute provides for recovery
by an individual participant.
Mr. Tievsky: Justice Roberts' concurring opinion agrees that
the participant has a claim, but perhaps not necessarily under
502(a)(2). He thinks the majority got the right result with the wrong
analysis. He says that a fiduciary claim under 502(a)(2) should not be
available if an appropriate remedy can be found under 502(a)(1)(B). In
this case, Roberts thinks that there is a possible claim for benefits
under 502(a)(1)(B). It's only after a finding that 502(a)(1)(B) is
unavailable that a claim under 502(a)(2) should be available. The
majority's opinion allows participants to circumvent the claims
procedure process, and plan administrators could possibly lose the
arbitrary and capricious standard when making benefit determinations.
Was there even a 502(a)(1)(B) claim here?
Ms. McGavin:No, there wasn't. The action was initially
structured only as a claim for equitable relief under 502(a)(3). The
District Court dismissed the 502(a)(3) claim. When the case went up to
the Fourth Circuit, the participant raised 502(a)(2) along with the
original 502(a)(3) claim.
Mr. Brandenburg:With this, there will be varying statutes of
limitations to deal with. Generally, the period for making a claim for
benefits under 502(a)(1)(B) is based upon the underlying state's
statute of limitations for contract claims. The statute of limitations
for fiduciary claims--under 502(a)(2)--is set at six years from the
date of the breach unless the participant has actual knowledge. If
there's actual knowledge, the limitations period is three years from
the date of actual knowledge of the breach.
Mr. Lewis: Perhaps we are in a better position now that the
Court has ruled this way. Congress may no longer feel the need to
intervene and make additional remedies available to participants.
Subjecting fiduciaries to punitive damages or other types of damages
could impact the viability of retirement plans. How are people going
to react to this? Should changes be made to plan documents?
Ms. McGavin:We have included time limitations for claims as
part of our plan documents. However, it is not clear whether such
limiting language will apply to claims that fall outside of
502(a)(1)(B).
This commentary also will appear in the May 2, 2008, issue of
the Tax Management Compensation Planning Journal.For more
information, in the Tax Management Portfolios, see Wagner, Bianchi,
and Marathas, 374 T.M., ERISA -- Litigation, Procedure, Preemption
and Other Title I Issues, and in Tax Practice Series, see
¶5530, Fiduciary Duties and Prohibited Transactions.
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