The Supreme Court of the United States recently issued a decision in the case of Larue v. DeWolff, Boberg & Associates that could have a drastic impact on fiduciaries of qualified retirement plans subject to the Employee Retirement Income Security Act (ERISA). The case centered around a claim by the plaintiff, James Larue, who brought suit against his former employer seeking lost appreciation in his 401(k) defined contribution retirement account. Larue asserted that the failure by the administrators to implement his investment strategy amounted to a breach of fiduciary duty under ERISA and sought the alleged depletion as damages.
The lower trial court and appellate court both ruled in favor of the former employer. However, on February 20, 2008, the Supreme Court, by a unanimous decision, held that ERISA does in fact “authorize recovery for fiduciary breaches that impair the value of plan assets in a participant’s individual account.” The result in Larue is a bit of a surprise to many in the retirement plan community. The surprise from the Larue decision was due in large part by the 1985 case of Massachusetts Mut. Life Ins. Co. v. Russell in which the Court held that the remedial provision involved in Larue provides a remedy only for an entire plan, not for individuals covered by the plan. However, the current Court distinguished Russell and Larue because Russell involved a defined benefit plan, whereas Larue involved a defined contribution plan. Reasoning for the distinction, the Court provided that “[f}or defined contribution plans, however, fiduciary misconduct need not threaten the solvency of the entire plan to reduce benefits below the amount that participants would otherwise receive.”
Despite the holding, the Court did not find in favor of Larue outright. Rather, the Court remanded the case for further determinations by the lower court. In addition, the Court added a qualification to the opinion in footnote 3 by providing “we do not decide whether petitioner made the alleged investment directions in accordance with the requirements specified by the Plan, whether he was required to exhaust remedies set forth in the Plan before seeking relief in federal court pursuant to ERISA, or whether he asserted his rights in a timely fashion.”
As a result of Larue, it is more important than ever to clearly articulate the requirements of a plan participant with regard to directing his or her account investments and require strict adherence to such requirements. Also, plan sponsors should maintain a thorough procedure to ensure that all participants’ investment directions are implemented as requested and within the time period specified by the plan and its supporting documents.
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