IMHO: All for One

Looks like James LaRue will get his day in court, after all.
Last week’s Supreme Court result (see Supreme Court Allows Individual ERISA Suits in Landmark Ruling) could perhaps have been anticipated – certainly there has been little of late to suggest an interest in depriving participants of their right to sue – but the margin of victory – 9-0 – was striking.
The case – LaRue v. DeWolff – involved a participant that claimed he had instructed his plan administrator to transfer his balances to different funds. Those instructions were either ignored, or never presented in the first place, depending on who you choose to believe – but the lack of attention to those instructions allegedly cost James LaRue $150,000. What really happened, why LaRue chose to sue when he chose to sue, and how much damage was done as a result has yet to be established – the case was dismissed by two lower courts that, relying on an earlier Supreme Court precedents, determined that ERISA did not permit individual participants to bring suit on behalf of their own interests, only on behalf of the plan as a whole.
I can’t say, however, that I was impressed with the rationale presented by Justice Stevens, who authored the court’s decision (he was joined by Justices Souter, Ginsburg, Breyer, and Alito, while Chief Justice Roberts and Justice Kennedy filed an opinion concurring in part and concurring in the judgment, and Justice Thomas filed an opinion concurring only in the judgment, which Justice Scalia joined). Essentially, Justice Stevens admitted that the Supreme Court had previously held in Massachusetts Mutual Life Ins. Co. v. Russell, that ERISA didn’t permit individual participant suits (1) – but that while “Russell’s emphasis on protecting the “entire plan’ from fiduciary misconduct reflects the former landscape of employee benefit plans. That landscape has changed.’
Change “Parse’?
How has it changed? Well, to put it simply, because defined contribution plans have individual accounts, and – here I’ll let Justice Stevens speak for himself – “Russell’s emphasis on protecting the “entire plan’ reflects the fact that the disability plan in Russell, as well as the typical pension plan at that time, promised participants a fixed benefit. Misconduct by such a plan’s administrators will not affect an individual’s entitlement to a defined benefit unless it creates or enhances the risk of default by the entire plan….Thus, Russell’s “entire plan’ references, which accurately reflect §409’s operation in the defined benefit context, are beside the point in the defined contribution context.’
Of course, defined contribution plans were not “beside the point’ when the Russell case was decided, and the justices then ((in an interesting touch, Stevens also authored that opinion) addressed what ERISA allowed, not what it provided for suits brought in a non-individual account context under ERISA. Consequently, to my eye, anyway, it’s as though the Supreme Court sought to “excuse’ its prior decision as not being applicable to ALL plans covered by ERISA (you’d think that could’ve been mentioned at the time), or worse – to suggest that because the “landscape’ has changed, so has the law.
I suppose some will appreciate the “vitality’ such flexible interpretations give the law, but it’s precisely those kind of situational determinations that unduly complicate our lives, IMHO. Defined contribution plans (and those individual accounts) have been with us more than a century, ERISA for a generation. What about the prevalence of defined contribution plans relative to defined benefit programs warrants a reinterpretation of the latter to adequately address the former – other than perhaps the fact that the justices themselves didn’t “get’ individual accounts in 1985 when the Russell case was decided? Or, more cynically, that the justices messed up in their Russell decision, and wanted to rationalize what could plausibly be viewed as a repudiation of the previous decision?
A Loss is a Loss
That’s why I much prefer the rationale expressed by Justice Thomas in his concurrence – a concurrence that “is not contingent on trends in the pension plan market. Nor does it depend on the ostensible “concerns’ of ERISA’s drafters.’ Thomas goes on to affirm the statutory right of a participant, beneficiary, or fiduciary to bring suit (“obtain relief’), and then goes on to state what common sense dictates – losses to individual accounts in a plan are losses of the plan – and recoverable as such (2).
Whatever the rationale, the law of the land now affirms that participants can bring suits based on injuries to their individual accounts. Frankly, the court’s previous sense that an injury to a participant in a plan was not a plan injury smacked of the kind of legal hair-splitting that only lawyers (and I have a JD) and politicians relish. Now, in the wake of the LaRue decision, I can understand and appreciate the concerns expressed on behalf of employers – that this case will simply set off a wave of new and expensive litigation.
No doubt the coverage of the LaRue case will serve to discourage some who were contemplating offering a 401(k), but I doubt that it will lead to the demise of plans already in existence. Much as I hate to contemplate the prospect of more red meat for the plaintiffs’ bar, I suspect the individual participant lawsuit “shield’ pierced by the LaRue decision was unappreciated by most plan sponsors. Perhaps most obviously, why else would so many have sought the protections of ERISA’s 404c, but to avoid the possibility of an individual participant suit?
Still, one need look no further than the rash of so-called stock drop cases or the revenue-sharing challenges to see the potential – and the LaRue headlines certainly convey the sense of a new way for workers to sue their employers. But I think plan sponsors – certainly the ones attentive to their fiduciary responsibilities – have long been concerned about participant lawsuits.
Of course, they’re also probably not the ones who should be worried.

(1) ERISA Section 409(a) provides: “Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this title shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made throughuse of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary. A fiduciary may also be removed for a violation of section 411 of this Act.’ 88 Stat. 886, 29 U. S. C. §1109(a).
(2) “The allocation of a plan’s assets to individual accounts for bookkeeping purposes does not change the fact that all the assets in the plan remain plan assets.’