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Compliance June 17, 2008
Cashed-Out Participants Keep Legal Standing Under ERISA
A federal appellate court ruled that employees don’t lose the right to pursue individual claims when they cash out their plan balances.
Reported by Fred Schneyer
The 4th U.S. Circuit Court of Appeals decision released Monday came in a consolidated action involving four lawsuits charging that employers violated their Employee Retirement Income Security Act (ERISA) fiduciary duties by investing plan assets in mutual funds that permitted market timing.
The panel threw out a ruling by Motz that the four plaintiffs involved in the consolidated case could not push forward with their case because they lacked legal standing. Relying heavily on the recent U.S. Supreme Court decision in LaRue v. DeWolff, Boberg & Associates Inc., Circuit Judge Paul V. Niemeyer, writing for the court, found the employees retained their ERISA standing because they wanted to recover amounts they claimed would have been in their accounts had it not been for the alleged fiduciary breach. (See Supreme Court Allows Individual ERISA Suits in Landmark Ruling.)
“As in LaRue … the plaintiffs’ claims here are based on allegations that breaches of fiduciary duties diminished the values of their individual accounts and that the plans entitled them to more than they received on the days they cashed out of them. Had the fiduciaries acted in accordance with their duties, the plaintiffs claim, their accounts would have held more money on the days they cashed out,” Niemeyer wrote. “Thus, because plan documents and ERISA entitled them to more money on the days they cashed out, their claims are for additional benefits, and not for damages as the district court held.”
Restoration of Assets
Looking to LaRue, the 4th Circuit found that ERISA authorizes individuals who have cashed out of defined contribution plans to sue plan fiduciaries for breaches of their duties when there is a loss to individual plan accounts. “The defendants’ argument that restoration of individual accounts would be speculative following any recovery in these cases thus fails to recognize that in a defined contribution plan, it is the plan assets in the individual accounts that are restored—less, of course, fees and expenses incurred,” the court ruled.
The defendants in the cases involved in Monday’s ruling were: Janus Capital Group, Amvescap National Trust, and Marsh & McLennan Companies.
The cases involved in the ruling were consolidated by the Judicial Panel on Multidistrict Litigation and were then transferred to the U.S. District Court for Maryland, where they were heard by U.S. District Judge J. Frederick Motz.
The ruling in Wangberger v. Janus Capital Group Inc.(In re: Mutual Funds Investment Litigation), 4th Cir., No. 06-2003, 6/16/08 is available here.