The United State Supreme Court ruled that ERISA allows individual claims by plan participants for breach of fiduciary duty that result in losses to an individual account rather than only to the entire plan. In LaRue v. DeWolff, Boberg, & Assoc., Inc., an employee brought an ERISA claim against his employer who was the plan administrator of a 401k plan. The employee claimed $150,000 in losses to his 401k account caused by his the failure to make the changes the employee directed in the investments held in his account. The employee claimed that the failure to make the changes was a breach of fiduciary duty under ERISA. The Court noted the change in the retirement plan landscape from defined benefit plans to defined contribution plans necessitates the recovery of fiduciary breaches in a participant’s individual account. The Court did not decide whether the employer breached its fiduciary duty.
The effect of allowing breach of fiduciary duty claims by individual participants is yet unknown. John Phillips at The Word on Employment Law observes that “Many are predicting that the Court’s ruling will result in a slew of meritless litigation from employees whose 401(k) plans aren’t doing as well in a shaky economy.” Some additional observations about ERISA plan administration may help evaluate this premise:
- Defined Contribution Plans typically identify the employer as the Plan Administrator but very few employers actually administer their plans.
- The Employer acting as Plan Administrator will contract out investment and other day-to- day “administrative” activities to other providers such as banks, mutual funds, consultants, etc.
- These other providers may or may not be “fiduciaries” within the meaning of ERISA. So ERISA-type claims by participants may not lie against them.
- An ERISA fiduciary breaches its duty if it fails to discharge his duties with respect to a plan with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.
- An employer may limit its fiduciary liability by selecting competent expert advisors and then monitoring their performance. The Boston ERISA & Insurance Litigation Blog’s post on The Benefits of Relying On Investment Managers is a great summary of this concept. The DOL also has tips for selecting and monitoring service providers including consultants and auditors.
- If other providers fail to perform there responsibilities their liability may be limited to contractual damages and subject to limitations of contractual indemnity. Employers should carefully review contacts with providers that limit liability of a provider with terms like “gross negligence.”
- The result may be that the employer faces the ERISA claims alone and is left with contract claims against the providers for resulting damages.
- ERISA provides for attorney’s fees for successful employee claims.
The answer may be that LaRue opens another avenue for lawsuits against employers, but an employer that carefully selects and monitors its relationships with pension plan providers will be in a better place to defend claims that it breached its fiduciary duty.