Retiree Loses Bid to Recover 2008 Losses

Dr. David M. Perry acted reasonably when he determined that, due to unforeseen market conditions, paying benefits to Sandra Wakamatsu based on the 2007 valuation would prejudice the other participants in the plan, U.S. District Judge Charles R. Breyer of the U.S. District Court for the Northern District of California ruled. Given the drastic decrease in the value of the pooled account for plan assets in 2008, and the request for disbursement came only two weeks before the scheduled end-of-the-year valuation.  Dr. Perry reasonably concluded that making a distribution based on the 2007 valuation would have allowed Wakamatsu to escape her share of the losses occurring in 2008 and force the other participants to bear those losses, Breyer found.    

“It is important to recognize that applying a different valuation date did not deprive [the] plaintiff of her benefits, and instead merely ensured that [the] plaintiff bore her share of the losses that the plan suffered over the course of the year,” Breyer wrote in his opinion. “Dr. Perry acted reasonably and fulfilled his duties to all plan participants by refusing to apply the 2007 Valuation to [the] plaintiff’s claim for benefits.”  

The court did find that there was a conflict of interest due to the fact that Dr. Perry’s wife and daughters were participants in the plan. However, considering their share of the assets was only 10%, Breyer said it was unlikely this weighed in Dr. Perry’s decision and gave it little consideration in the court’s ruling.

 

 (Cont...)

Wakamatsu retired from Dr. Perry’s dental office on October 31, 2006. In a letter to Wakamatsu dated December 10, 2008, by the 401(k) plan’s recordkeeper, her payable benefits were estimated at $195,317.82, based on the valuation date of December 31, 2007. Wakamatsu completed the required distribution request forms on December 17, 2008.    

However, after determining that processing Wakamatsu’s claim under the 2007 valuation would be a breach of fiduciary duty owed to the remaining plan participants, Dr. Perry processed the request for benefits under a valuation date of December 31, 2008, which totaled $135,449.40. Wakamatsu declined to take payment in 2009.  

Another valuation on December 31, 2009, put Wakamatsu’s account at $159,581.93. She took a distribution of $159,581.93, but filed a lawsuit seeking the $35,735.89 difference between her distribution and her account value as of December 31, 2007.  

The court’s opinion is here.