LaRue v. DeWolff, Boberg & Associates, Inc.
2008 U.S. LEXIS 2014, 552 U.S. 248, 169 L. Ed. 2d 847 (2008)
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Rule of Law:
Under ERISA § 502(a)(2), a participant in a defined contribution plan may sue a fiduciary for a breach of duty that impairs the value of assets in the participant's individual account, as such a loss constitutes a loss "to the plan."
Facts:
- James LaRue was a participant in a 401(k) retirement savings plan administered by his former employer, DeWolff, Boberg & Associates, Inc.
- The plan was a 'defined contribution plan,' which allowed participants to direct the investment of their contributions into various funds.
- In 2001 and 2002, LaRue alleged that he directed DeWolff to make specific changes to the investments within his individual 401(k) account.
- DeWolff failed to implement these investment directions as requested by LaRue.
- As a result of this failure, LaRue claimed that the value of his interest in the plan was depleted by approximately $150,000.
Procedural Posture:
- James LaRue sued his former employer, DeWolff, Boberg & Associates, Inc., in the U.S. District Court for the District of South Carolina (a federal trial court).
- The defendants filed a motion for judgment on the pleadings, which the District Court granted, finding LaRue was seeking a remedy not available under ERISA.
- LaRue, as appellant, appealed the decision to the U.S. Court of Appeals for the Fourth Circuit.
- The Court of Appeals affirmed the District Court's judgment, holding that § 502(a)(2) only permits remedies for the 'entire plan,' not for an individual's account.
- The U.S. Supreme Court granted LaRue's petition for a writ of certiorari to review the Court of Appeals' decision.
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Issue:
Does ERISA § 502(a)(2) authorize a participant in a defined contribution plan to sue a plan fiduciary for a breach of fiduciary duty that impaired the value of the assets in only the participant's individual account?
Opinions:
Majority - Justice Stevens
Yes. Although ERISA § 502(a)(2) does not provide a remedy for individual injuries distinct from plan injuries, it does authorize recovery for fiduciary breaches that impair the value of plan assets in a participant’s individual account. The Court distinguished its prior holding in Massachusetts Mut. Life Ins. Co. v. Russell, which involved a defined benefit plan. In a defined benefit plan, fiduciary misconduct does not affect an individual's entitlement unless it threatens the solvency of the entire plan. However, the modern landscape is dominated by defined contribution plans, where the plan is essentially the sum of its individual accounts. Therefore, a loss of assets in a participant's individual account is, by definition, a loss of assets 'to the plan.' The Court further reasoned that ERISA § 404(c), which shields fiduciaries from liability for losses caused by a participant's own investment decisions, would serve no purpose if fiduciaries were never liable for losses to an individual account in the first place.
Concurring - Chief Justice Roberts
Agrees that the Fourth Circuit's analysis was flawed but raises the possibility that LaRue's claim might be more appropriately brought under ERISA § 502(a)(1)(B) as a claim 'to recover benefits due to him under the terms of his plan.' Chief Justice Roberts cautions that allowing such claims to proceed under § 502(a)(2) might permit plaintiffs to circumvent important procedural safeguards associated with § 502(a)(1)(B) claims, such as the requirement to exhaust administrative remedies and the deferential 'abuse of discretion' standard of review for plan administrator decisions. This opinion concurs in the judgment to remand but leaves this alternate statutory question open for lower courts to consider in the future.
Concurring - Justice Thomas
Agrees with the majority's judgment but bases the conclusion solely on the unambiguous text of ERISA, rather than on the changing landscape of pension plans or congressional intent. Section 409(a) makes a fiduciary liable for 'any losses to the plan.' Because a defined contribution plan's assets are the sum total of all assets in the individual participants' accounts, a loss to an individual account is necessarily a loss 'to the plan.' The textual analysis is sufficient to decide the case without resorting to the policy-based reasoning of the majority.
Analysis:
This decision significantly clarifies the scope of fiduciary liability under ERISA, adapting its interpretation to the modern prevalence of defined contribution plans like 401(k)s. It effectively limits the holding of Massachusetts Mut. Life Ins. Co. v. Russell to the context of defined benefit plans, thereby opening a critical avenue for individual participants to seek recovery for breaches of fiduciary duty that harm only their own accounts. The concurrences signal that significant legal questions remain, particularly the potential overlap and conflict between claims brought under § 502(a)(2) and § 502(a)(1)(B), which will likely be a major source of future litigation in this area.
