Last week, the Supreme Court ruled unanimously that an individual participant in a 401(k) defined contribution plan can maintain a breach of fiduciary duty claim under ERISA, even though the alleged breach affected only the value of his own individual account. LaRue v. DeWolff, Boberg & Assocs., Inc., No. 06-856, 2008 WL 440748 (Feb. 20, 2008).
The decision clears the way for lawsuits by 401(k) participants against plan fiduciaries for alleged mismanagement of the participants' individual accounts. Although some ERISA attorneys are claiming the litigation "floodgates" are now open, we do not see the decision as especially harmful to plan fiduciaries and sponsors. Actions concerning individual plan accounts are relatively infrequent, and typically do not expose defendants to the risk of large damages awards. We suspect that the real impact of LaRue will depend on how courts hereafter apply the varied reasoning in the majority opinion and in Chief Justice Roberts' concurrence. The majority opinion opens the door for plaintiffs to argue that the limitations imposed by Russell on relief under ERISA apply only to defined benefit plans. Chief Justice Roberts' approach provides an opening for the defense bar to argue that many fiduciary lawsuits are simply disguised claims for benefits - so a fiduciary's conduct arguably should be judged (1) after administrative remedies are exhausted, and (2) possibly under a more deferential standard of review. We discuss these and other aspects of the three opinions in the "unanimous" decision further below.
LaRue alleged in the lawsuit that the value of the holdings in his 401(k) account had decreased $150,000 when his former employer failed to follow his instructions to move his money to different investments. Relying on the Supreme Court's prior decision in Massachusetts Mutual Life Insurance Company v. Russell, 473 U.S. 134 (1985), the Fourth Circuit held that ERISA only authorizes breach of fiduciary duty claims that affect the entire plan and the statute does not permit individualized recovery for alleged fiduciary breaches in cases like LaRue's. However, several other federal appeals courts had already allowed such suits to proceed.
Justice Stevens wrote for a majority of the Court, reversing the Fourth Circuit's decision. He asserted that the Supreme Court's focus in Russell on protecting the "entire plan" from fiduciary misconduct reflected (1) the fact that defined benefit plans were the...