Plan participants can sue to recover investment losses, U.S. Supreme Court holds

The U.S. Supreme Court unanimously decided yesterday that ERISA retirement plan participants can sue plan fiduciaries for losses to their individual accounts caused by alleged fiduciary breaches.

In LaRue v. DeWolff, Boberg & Associates, Inc., the plaintiff alleged that the plan fiduciary had not carried out his investment directions properly, causing $150,000 in losses.  ERISA allows participants to bring actions against plan fiduciaries for breaches of the fiduciary's duties, but previous Supreme Court decisions had limited recovery to losses to the plan as a whole, not to individual participants.  Since only one participant alleged damages in this case, the fiduciaries hoped the court would toss the lawsuit.

Plaintiff LaRue argued successfully that the earlier decisions denying relief involved defined benefit plans, where plan assets are held and invested collectively by the fiduciaries.  LaRue's claim involved a 401(k) plan that, as almost all do, allowed participants to invest their individual account in a variety of investment options.  The court agreed that distinction justified not applying the earlier decisions and allowing the suit to proceed.  As a result, the case now heads back to the trial court to resolve the issues on the merits.  Although plan fiduciaries may not like the outcome, at least the decision clarified an issue that had grown increasingly uncertain over the past few years.

Plan fiduciaries should clearly understand the risks inherent in their position and how to mitigate them.  Good processes, competent advisors and insurance coverage all play a part in protecting fiduciaries.