LaRue, ERISA and the U.S. Supreme Court
Inside the hallowed halls of the U.S. Supreme Court, pension history may be in the making. On November 26, 2007, justices heard the case of LaRue v. DeWolff, Boberg & Associates Inc. The long awaited outcome could put employers in the ERISA litigation spotlight as never before by allowing individuals to sue, one person at a time.
By way of background, Mr. James LaRue sought to have his employer switch his 401(k) monies from one mutual fund to another, in his attempt to migrate to "safer" investments. The plan administrator failed to make the change, allegedly costing LaRue an estimated $150,000 in lost profits. In August 1996, the United States Court of Appeals for the Fourth Circuit, in Richmond, Virginia denied LaRue an opportunity to seek redress, claiming that ERISA emphasizes harm to a plan in aggregate. The opinion reads:
<< In ERISA, Congress sought to provide fair and generous remedies for plan participants without imposing ruinous personal liability on plan fiduciaries. That balance pervades the statute, and it is not for us to readjust it. With respect, we think the Secretary’s view does recalibrate the balance, and we do not possess authority to modify plain statutory text, several Supreme Court decisions, and the corpus of circuit law on the subject. If the Department believes fiduciaries should face personal liability for every wrong alleged by individual beneficiaries, even in the absence of personal profit or misuse of plan assets, it will have to seek a forum other than this court. >>
This begs the question then as to how an individual plan participant can hold administrators and relevant parties accountable for mistakes. The import of this issue is huge. At a time when countless companies are terminating defined benefit plans and opting to offer 401(k) plans in their stead, anything that makes that strategy more expensive and/or troublesome could create pushback. If this occurs, employees are going to be under even more pressure to save for their retirement on their own. Add Social Security and Medicare woes, along with what some predict is an imminent recession, and Joe Everyman is likely to truly feel the pinch in a major way. On the other hand, employers fear an honest mistake that arguably opens the floodgates to costly litigation.
A read of the June 19, 2006 and August 8, 2006 LaRue opinions is instructive, as are the salient documents presented to the U.S. Supreme Court. Click here to download relevant files. Click here to read an informative overview provided by law professor Paul Secunda (who predicts a 6-3 victory for LaRue). One item in Secunda's text that struck me as notable is the line of inquiry by Chief Justice Roberts wherein he "points out that the SPD does not say administrators have to follow the investment directions of participants." Reading these words catches one's breath. Is the honorable jurist suggesting that the Summary Plan Description ( a guiding document as regards the administration of the plan) preclude an asset allocation change? If so, how are employees to deal with market volatility or altered circumstances that mandate a different investment risk-return tradeoff? I await feedback from ERISA attorneys on this and other points.
Pay close attention when this opinion is rendered. It will make a difference!
