In a decision with signifi cant implications for plan fiduciaries, the U.S. Supreme Court has held that individual participants in a defined contribution plan can sue for a breach of fiduciary duty that results in a loss to the participant’s own account, even if not all participants’ accounts have similar losses. On February 20, 2008, in LaRue v. DeWolff Boberg & Associates, Inc., et al., the Court ruled that Section 502(a)(2) of the Employee Retirement Income Security Act of 1974, as amended (ERISA), “does not provide a remedy for individual injuries distinct from plan injuries,” but that provision “does authorize recovery for fi duciary breaches that impair the value of plan assets” in one or more, but not all, participants’ accounts.

In LaRue, James LaRue elected to change the investments in his 401(k) plan, but the plan administrator failed to implement his election. LaRue claimed he lost approximately $150,000 in his retirement accounts because of the plan administrator’s failure to follow his investment directions. The fiduciary of the plan, LaRue’s former employer, was named as a defendant in the case. The Supreme Court ruled that ERISA permitted a claim by a participant for lost profits in the participant’s accounts, if the loss resulted from a fi duciary breach. The Supreme Court’s ruling resolved a split among the courts on this issue. Significantly, the Supreme Court provided a list of the issues it was not deciding. For example, the Court stated that it was not deciding whether the participant had to exhaust the Plan’s administrative remedies before filing a lawsuit under ERISA Section 502(a)(2). In his concurring opinion, the Chief Justice emphasized that the Court was not deciding whether this claim was really a claim for benefi ts under Section 502(a)(1)(B), because that issue was not before the Court. The Chief Justice explained that if this is more appropriately characterized as a claim for benefits, then it is likely that a participant could not also make a claim for fi duciary breach.

What does this mean for plan fiduciaries?

LaRue’s victory means that there is likely to be a significant increase in litigation involving 401(k) plans. In particular, plan fiduciaries may be confronted with a variety of claims brought by plan participants seeking to recover losses to their individual accounts, including claims based on simple administrative errors.

The Court’s ruling should serve as a reminder that participants’ claims—characterized as breaches of fiduciary duty that result in losses or as claims for more benefits—should be processed through the Plan’s claim and appeal procedure. Plan administrators may want to revise summary plan descriptions to remind participants that if they think they are entitled to more benefits from the plan for whatever reason, they should use the plan’s claim and appeal procedure.

This opinion should also serve as a continuing reminder of the importance of conducting ongoing fiduciary due diligence. Plan fiduciaries should have an established process to review the investment performance of their plan investment offerings. The specifics of the review process should be set forth in an investment policy adopted by the plan fiduciaries responsible for plan investments. Plan fiduciaries should also review the plan’s procedures for implementing participant investment directions and for checking whether the instructions are being followed.

Now is also a good time to review service provider agreements. Plan fiduciaries should analyze the fees charged by their service providers that affect the rate of return on participants’ accounts and be sure that they have properly disclosed the fees to the participants.