James LaRue was a participant in a 401(k) plan administered by DeWolff, Boberg & Associates, Inc. LaRue alleged that he directed DeWolff to change specific investment allocations in his retirement account. However, DeWolff failed to execute these directions, resulting in an estimated $150,000 loss to LaRue's retirement savings. LaRue brought suit under ERISA § 502(a)(2), seeking to recover the losses to his account, contending that DeWolff's actions constituted a breach of fiduciary duty under ERISA.
Can an individual participant in a 401(k) retirement plan sue plan fiduciaries for losses to his individual account under ERISA § 502(a)(2)?
ERISA § 502(a)(2) allows participants, beneficiaries, and fiduciaries to bring a civil action for violations of the fiduciary duties outlined in the statute, including breaches that result in losses to individual accounts in a defined contribution plan.
The United States Supreme Court held that ERISA § 502(a)(2) does allow an individual participant in a defined contribution pension plan, like a 401(k), to pursue losses to their individual account due to fiduciary breaches.
The Court reasoned that ERISA § 409(a) speaks to relief for 'the plan' as a whole, but in a defined contribution plan, harm to the entire plan may manifest as harm to individual accounts within that plan. The Court noted that to impose traditional trust law principles, where trustees must account to beneficiaries, on defined contribution plans makes sense as the loss is to the affected individual's account due to mismanagement, aligning with the purpose of ERISA's protective measures. The crucial distinction rested on the nature of 401(k) plans, where individual investment decisions directly impact the value of one's account, differentiating it from the pooled, collective resilience of defined benefit plans.
LaRue v. DeWolff is fundamental for law students studying ERISA as it clarifies the application of fiduciary duty and liability within the framework of defined contribution plans versus defined benefit plans. This precedent extended ERISA's civil enforcement provision to include individual account claims, reinforcing ERISA's role in providing robust protections to participants seeking remedies for fiduciary breaches at the individual level. This decision marks a significant shift towards recognizing the individual interests and rights of plan participants within defined contribution schemes, making it crucial for future fiduciary litigation.
The LaRue v. DeWolff decision represents a notable evolution in ERISA jurisprudence by allowing individual plan participants to seek remedies for personal account losses due to fiduciary breaches. This decision ensures that the fiduciary responsibilities codified under ERISA are enforceable not just generally but also in terms of individual financial impacts within defined contribution plans, reinforcing ERISA’s protective mandate. For law students and practitioners, LaRue epitomizes a modern understanding of individual rights under ERISA, aligning legal interpretations with the realities of contemporary retirement plans. It underscores the ongoing relevance of fiduciary duty within the framework of employee benefits and continues to serve as a critical point of reference for ERISA-related litigation and fiduciary accountability.