Significant ERISA Case Decided by Supreme Court
In a case (LaRue v. DeWolff) that could have far-reaching consequences for employers and employees alike, the U.S. Supreme Court ruled on February 20 that the Employee Retirement Income Security Act (ERISA) allows an employee to sue his employer because of a fiduciary breach that resulted in individual losses to his 401(k) plan.
James LaRue says he told his employer to change his investment allocations from mutual funds to cash and didn’t find out for 10 months that it didn’t follow his instructions. LaRue says that when he repeated his request, the employer again failed to do so. The result, according to LaRue, was that his plan assets were depleted by $150,000. He sued his employer under ERISA in an attempt to recover his losses.
The employer argued (and many observers believed) that ERISA provides a remedy only for fiduciary breaches that result in losses to the entire plan, not those that result in losses to an individual employee’s account.
In a highly technical reading of the statute, the Court disagreed. Generally, it ruled that unlike a defined benefit pension plan, ERISA allows employees to recover for an employer’s breach of fiduciary duties with regard to a 401(k) plan regardless of whether it diminishes plan assets payable to all participants or only to one individual employee.
Many are predicting that the Court’s ruling will result in a slew of meritless litigation from employees whose 401(k) plans aren’t doing as well in a shaky economy.
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About Chris Parker
Chris Parker's practice focuses on the representation and counseling of companies in matters pertaining to the workplace and the protection of their intellectual property and trade secrets. In addition to serving as an advocate for clients, Mr. Parker is also trained as a mediator and frequently serves as a third-party neutral.
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Jimmy Daniel provides counseling to businesses of all sizes related to the employment relationship. He assists in the drafting of employment agreements, policies, and handbooks, as well as provides guidance related to compliance with federal, state, and local legislation such as the Fair Labor Standards Act and the Family and Medical Leave Act.
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While serving in an Of Counsel relationship with the firm, Mr. Bridgesmith also serves as the Executive Director at the Institute for Conflict Resolution at Lipscomb University and as an officer and principal in Strategic Resolutions Group, LLC. In these roles, Mr. Bridgesmith brings over 30 years of legal experience in dispute resolution and innovative workplace strategies to clients, students and business entities alike.
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I wonder about the observation that a “slew of meritless litigation” may arise from LaRue in light of the declining stock market and the opening of an additional avenue to sue retirement plans. Do you think there is a way out of this by employer’s limiting their fiduciary responsibility by hiring and monitoring competent experts. Does an employer breach its fiduciary responsibility by executing a contract with a provider that limits the nonfiduciary provider’s liability to gross negligence?
Very good points and questions. Right now, the “slew of meritless litigation” observation is speculation. The Court’s decison certainly makes that possible, it seems to me, but we’ll have to wait and see. In my opinion, the answer to your first question is no. It gives you something to argue about, but the employer is still on the hook. With respect to your second question, in my opinion, the answer is also no. However, I’m not sure how such a ontract helps. These questions and others will play out I’m sure as we digest the Court’s opinion in this case and as there is other litigation spawned from the Court’s opinion. Thanks for weighing in.