Scope of ERISA Remedies Further Defined in Forced Retirement Case

In a case which may provide further insights into the scope of ERISA remedies, the Northern District of New has ruled in  Harris v. Finch, Pruyn & Co., No. 1:05-cv-951, (N.D.N.Y. Aug. 26, 2008) (no publication available yet) that back pay is unavailable under ERISA who were allegedly misled into retiring.

BNA Daily Labor Report explains:

A paper manufacturer does not owe back pay and lost benefits to 14 employees who were not reinstated after a strike and who allege they were misled into resigning and retiring so that they could access the benefits in their 401(k) plan accounts, the U.S. District Court for the Northern District of New York ruled Aug. 26.

Noting that there is a circuit split as to whether back pay is available under the Employee Retirement Income Security Act, Judge Frederick J. Scullin Jr. sided with courts that have found that back pay is not an equitable remedy under ERISA Section 502(a)(3) because it is measured by an employee's loss rather than an employer's gain.

The court found, however, that a genuine issue of material fact remained as to whether the 14 employees were entitled to have their retirements rescinded and their employment reinstated as forms of equitable remedies to address the alleged fiduciary breaches that led to their retirements.

In addition, the court said the employees had no legal remedy available under ERISA Section 502(a)(2). In so finding, the court rejected the employees' contention that the U.S. Supreme Court's recent decision in LaRue v. DeWolff, Boberg & Associates, 128 S. Ct. 1020, . . . allowed them to recover for their individual plan accounts rather than on behalf of the plan as a whole.

LaRue did not expand an ERISA Section 502(a)(2) claim to allow individual claims that are not based on losses to plan assets, the district court said. "Plaintiffs' alleged injuries--being induced to retire or resign--were solely individual in nature," the court said.

I couldn't disagree with the court more on the scope of equitable relief under Section 502(a)(3).  Back pay is an equitable, make-whole remedy and is consistent with types of relief which are available under the common law of trusts, upon which ERISA is based. 

On the other hand, I think the court may be trying to go out of its way to cabin the LaRue finding in the 502(a)(2) context to not allow individual claims in this type of case. But I do think the distinction between a fiduciary breach that cause an account to lose money and one that leads to a person cashing out of a plan makes some sense.

Here's hoping the 2nd Circuit provides some daylight to ERISA plaintiffs and reverses the district court on its 502(a)(3) holding.

PS