Individuals Can Sue for Damages to Individual Account for Plan Fiduciary's Breach

In a much anticipated decision, the United States Supreme Court held yesterday that an individual participating in a defined contribution plan, such as a 401(k), can sue under ERISA section 409(a) for individual damages caused by breach of fiduciary duty by the plan administrator, when such fiduciary breach impaired the value of the assets in the individual's account.  See LaRue v. DeWolff, Boberg & Assocs., Inc., No. 06-856 (S. Ct. Feb. 20. 2008).

In this case, the plaintiff claimed that the plan administrator failed to make requested changes to his investment choices, causing approximately $150,000 in losses.  Section 409(a) imposes fiduciary duties for management, administration, and investment of fund assets.  

Prior to this case, it was generally believed that under ERISA Section 502(a)(2) individuals could not sue for individual monetary relief for a breach of fiduciary duty, as compared to suing for equitable relief awarded to the plan.  The Supreme Court made held that in circumstances involving a defined contribution plan (such as a 401(k)), as compared to a defined benefit plan (such as a pension), individuals can sue in circumstances involving the statutory duties imposed by section 409(a).   

 

Proposed Regulations for Fee Disclosures Affecting 401(k) and Other Benefit Plans

The United States Department of Labor has proposed regulations enhancing the disclosure requirements of service plan providers to plan fiduciaries concerning fees charged and conflicts of interests that may impact the service provider's performance.  The Department of Labor also is considering an exemption for fiduciaries who entering into a contract with service providers who fail to meet their disclosure obligations without the knowledge of the fiduciary.

The proposed regulations are under ERISA section 408(b)(2), 29 U.S.C. § 1108, which exempts certain contracts or arrangements between plans and service providers that would otherwise be prohibited transactions under ERISA section 406, 29 U.S.C. § 1106, if such contracts or arrangements are reasonable.  The proposed regulations address the disclosure requirements applicable to "reasonable contracts or arrangements."  These disclosures in general are (a) the compensation received by the service provider, directly or indirectly, and (b) any conflicts of interest that may arise in connections with the service provider's services to the plan.

Revenue Sharing 401(k) Claim Dismissed

A federal court in Wisconsin held that an employer, trustee for the employer's 401(k) plans, and the investment advisor of the 401(k) funds cannot be liable under ERISA for failing to dislose that the investment advisor shared some of the fees it received with the trustee of the 401(k) plan.  Hecker v. Deere & Co., 2007 WL 1874367 (W. D. Wis. June 21, 2007).

The trustee in the case was Fidelity Trust and the investment advisor was one of its corporate siblings, Fidelity Research.

The court held that (1) ERISA's disclosure provisions don't require disclosure of revenue sharing and (2) it is not a breach of an ERISA fiduciary duty to fail to disclose revenue sharing arrangements.

 

 

Restitution Claim Against Fiduciaries to Be Heard by Supreme Court

On June 12, 2007, The United States Supreme Court agreed to hear LaRue v. DeWolff, Boberg & Assoc., 06-856, a case in which a court of appeals held that a plan participant could not sustain a claim for restitution under ERISA against fiduciaries of his 401(k) plan.  See 458 F.3d 359 (4th Cir. 2006).  In this case, the plan participant claimed that the fiduciaries had failed to follow his directions regarding investments in his account.  The court of appeals for the 4th Circuit held that the provisions of ERISA relied upon by the plan participant for his claim, 29 U.S.C. § 1132(a)(2) and (3), do not permit individual recovery and the plan participant did not allege any unjust enrichment, self-dealing or unlawful possession that would permit recovery under subsection (3), which is the provision governing equitable relief. 

The Supreme Court's analysis of this matter is likely to be a far reaching decision and should be closely watched.

 

403(b) Litigation Heats Up

Here's an interesting article regarding ERISA class actions explaining how plaintiff's class action lawyers are modeling 403(b) litigation after 401(k) litigation.  As this article explains, employers offering 403(b) plans should review the fees the charged by their plans and investment options.