Interesting Article About LaRue Case Allowing Suits Against ERISA Fiduciaries

401(K) Party May Sue for Fiduciary Breach Under ERISA is a well written April 7, 2008 New York Law Journal article by Jeffrey S. Klein and Nicholas J. Pappas (registration required). The article summarizes the Supreme Court's recent decision in  LaRue v. DeWolff, Boberg & Associates (2008). The article also does an excellent job of summarizing the law leading up to LaRue.

LaRue held that a 401(k) participant may sue a fiduciary for breach of duty. As noted in the article, the court distinguished  Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 144, 147. (1985) as a case involving a defined benefit plan. The article concludes by providing the following advice to plan fiduciaries:

In light of LaRue, plan sponsors and fiduciaries may want to take certain actions to evaluate their potential exposure to claims of fiduciary breach.

First, plan fiduciaries should be identified and the extent of fiduciary bonds and indemnifications should be reviewed. Since fiduciaries may be personally liable for plan losses, it is important for fiduciaries to be aware of the extent of their duties under the plan documents and those imposed by ERISA. Often plan sponsors provide fiduciaries with a bond and/or indemnification for damages resulting from certain types of breaches. This may be a good time for fiduciaries to review the amount of any bond that may have been purchased for reimbursement for damages incurred in their capacity as fiduciaries and the extent to which they may be indemnified.

Section 404(c) of ERISA limits fiduciary liability for certain investment losses in participant-directed account plans if certain requirements are met, including the requirement that the plan offers a diversified assortment of investments from which plan participants may choose. Plan sponsors and fiduciaries should review all of the requirements of, and ensure compliance with, ERISA §404(c) as a preventative measure to decrease the potential for investment loss claims.

Finally, other individual account plans such as nonqualified deferred compensation plans should be reviewed as well. These nonqualified arrangements may be subject to or exempt from ERISA, and it will become increasingly important to be aware whether the LaRue decision may be extended so as to impose liability under these types of arrangements as well.

Mitchell H. Rubinstein