Full text of the LaRue decision

In a unanimous decision, the U.S. Supreme Court has held that individuals may bring suit under ERISA against a plan administrator to recover losses in their personal 401(k) accounts that arise from the plan administrator's breach of fiduciary duty. See LaRue v. DeWolff, Boberg & Associates, Inc., 128 S. Ct. 1020, 169 L. Ed. 2d 847 (Feb. 20, 2008).

In LaRue, the participant alleged that he had instructed DeWolff in 2001 and 2002 to make certain changes to the investments in his individual 401(k) account, but that DeWolff had failed to carry out his instructions, resulting in a depletion of $150,000 to his account. The participant filed suit against DeWolff and the Plan under § 502(a)(3) of ERISA seeking "make-whole or other equitable relief." The district court dismissed the participant's claim. On appeal, the participant claimed that he had not only asserted a claim under § 502(a)(3), but also a claim under § 502(a)(2) of ERISA resulting from DeWolff's breach of fiduciary duty in mismanagement of his account.

In dismissing the participant's claim, both the district court and the Fourth Circuit Court of Appeals relied upon the Supreme Court's decision in Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134 (1985). In Russell, the Supreme Court held that a participant in a fixed benefit disability plan could not bring suit under § 502(a)(2) of ERISA against the plan to recover damages resulting from a breach of fiduciary duty under § 409 of ERISA. The Russell Court held that "the text [of § 409] shows that Congress did not intend to authorize any relief except for the plan itself." Since 1985, virtually every court interpreting Russell has held that a participant may not assert a claim under § 502(a)(2) of ERISA unless the recovery inures to the benefit of the plan as a whole, rather than to the participant individually.

In LaRue, the Supreme Court for the first time distinguished between the type of plan at issue in that case -- a defined contribution plan -- and a defined benefit plan, such as the disability plan at issue in Russell. A "defined contribution plan," such as a 401(k) retirement account, promises the participant the value of an individual account at retirement, which is largely a function of the amounts contributed to the account and the investment performance of those contributions. In contrast, a "defined benefit plan" generally promises the participant a fixed level of benefits based on varying factors, such as the employee's years of service and compensation. Thus, the LaRue Court clarified for the first time that its decision in Russell was limited to defined benefit plans.

The Court held that, in contrast, a participant or beneficiary in a defined contribution plan may pursue breach of fiduciary duty claims against the plan administrator under ERISA § 502(a)(2) even if his or her account is the only one affected by the administrator's misconduct. The Court did not purport to reverse its decision in Russell, but instead held that its reasoning in Russell dictated a different result when applied to defined contribution plans. The Court found that the retirement plan "landscape" has changed since Russell. It noted that defined contribution plans now dominate the retirement plan scene, where individual accounts are the norm. Those individual accounts are comprised of plan assets.

Thus, the Court in LaRue found that fiduciary misconduct need not threaten the solvency of the entire plan to reduce the benefits that participants would receive. By affecting individual accounts containing plan assets, an administrator's misconduct sufficiently threatens plan assets to fall within the scope of ERISA's intended protection. Therefore, when defined contribution plans are implicated, a participant may bring suit for breach of fiduciary duty against a plan administrator regardless of whether the plan administrator's conduct caused a reduction in plan assets for all participants or merely caused the participant individual harm.

Chief Justice Roberts authored a concurring opinion in which he suggested that the participant's claim could have been brought pursuant to § 502(a)(1)(B) of ERISA, which allows a participant or beneficiary to recover benefits due under a plan, but permits deference to the plan administrator's discretion. Justice Thomas likewise issued a concurring opinion, which found that the decision was achieved solely by construing the term "plan" in the context of defined contribution plans as the participant's individual plan.

The decision in LaRue will undoubtedly result in greater litigation by plan participants against plans and plan administrators seeking to recover losses from conduct claimed to have resulted from mismanagement, improper administration, and imprudent investment of funds' assets. Plan administrators may wish to consider ways in which to manage their risks in light of this changing landscape, including revisiting documentation procedures and protocols for responding to participant instructions, monitoring compliance with ERISA standards, ensuring adequate insurance protection and other measures.