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).   

 

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.