On February 20, 2008, the U.S. Supreme Court unanimously held that an individual plan participant may bring suit for fiduciary breaches under the Employee Retirement Income Security Act (“ERISA”) to recover losses to his or her individual account. In vacating the judgment of the Fourth Circuit Court of Appeals, the Supreme Court cleared the way for individual plan participants to bring suit for recovery of fiduciary breaches that impair the value of plan assets in a participant’s individual account. (LaRue v. DeWolff, Boberg & Associates, Inc., 552 U.S. _ (2008).

James LaRue was an employee of DeWolff, Boberg & Associates, Inc. (“DeWolff”) and a participant in DeWolff’s 401(k) retirement savings plan (the “Plan”), which was administered by DeWolff. The Plan permitted participants to direct the investment of their contributions. In 2001 and 2002, LaRue alleged that he directed DeWolff to make certain changes to the investments in his individual account, but DeWolff never carried out his investment instructions. LaRue filed suit under ERISA, alleging that DeWolff’s failure to follow his investment instructions “depleted” his interest in the Plan by approximately $150,000 and amounted to a breach of fiduciary duty under ERISA.

LaRue relied on ERISA Section 502(a)(2), which authorizes the Secretary of Labor, plan participants, beneficiaries and fiduciaries to bring actions on “behalf of the plan” to recover for violations of fiduciary obligations under ERISA Section 409, which relates to the proper management, administration and investment of fund assets. However, citing the Supreme Court’s decision in Massachusetts Mut. Life Ins. Co v. Russell, 473 U.S. 134 (1985) (“Russell”), which held that ERISA Section 502(a)(2) provides remedies for entire plans and not for individuals, the federal district court and the Fourth Circuit ruled in favor of DeWolff.

The Supreme Court, in vacating the Fourth Circuit’s ruling, said that “protecting the entire plan from fiduciary misconduct reflects the former landscape of employee benefits plans, and that landscape has changed.” When ERISA was enacted and when Russell was decided, the Supreme Court noted that defined benefit plans were the norm. Today, defined contribution plans dominate. As a result, the court held that the “entire plan” language in Russell speaks to the impact of ERISA Section 409 on plans that pay defined benefits, and it does not apply to defined contribution plans, such as 401(k) plans. Therefore, LaRue could pursue his individual claim.

According to Frank J. Del Barto, the Court’s decision should immediately cause plan sponsors and plan fiduciaries to review (1) their fiduciary obligations under ERISA, (2) any bonding, insurance or indemnification protections,, and (3) all processing procedures to ensure that plan participants’ investment instructions are properly carried out. Frank notes that plan fiduciaries must truly understand their duties and obligations under ERISA because ERISA Section 409 makes fiduciaries personally liable for fiduciary breaches.