:: Supreme Court Vacates Fourth Circuit’s Decision In LaRue
Distinguishing its prior holding in Massachusetts Mut. Life Ins. Co. v. Russell, 473 U. S. 134 (1985). a defined benefits case, the Supreme Court held in LaRue v. DeWolff, Boberg & Associates (06-856) that ERISA §502(a)(2) authorizes recovery for fiduciary breaches that impair the value of plan assets in a participant’s individual account.
Stevens, J., delivered the opinion of the Court, in which Souter, Ginsburg, Breyer, and Alito, JJ., joined. Roberts, C. J., filed an opinion concurring in part and concurring in the judgment, in which Kennedy, J., joined. Thomas, J., filed an opinion concurring in the judgment, in which Scalia, J., joined.
SCOTUS blog has posted the opinion here.
Congratulations to Rob Hoskins, Esq., counsel for the LaRue. Also, congratulations are in order for Professor Zelinsky whose work was cited by the Court in this key excerpt:
The “entire plan†language in Russell speaks to the impact of §409 on plans that pay defined benefits. Misconduct by the administrators of a defined benefit plan will not affect an individual’s entitlement to a defined benefit unless it creates or enhances the risk of default by the entire plan. It was that default risk that prompted Congress to require defined benefit plans (but not defined contribution plans) to satisfy complex minimum funding requirements, and to make premium payments to the Pension Benefit Guaranty Corporation for plan termination insurance. See Zelinsky, 114 Yale L. J., at 475-478.
The crux of the decision is presented in this excerpt:
For defined contribution plans, however, fiduciary misconduct need not threaten the solvency of the entire plan to reduce benefits below the amount that participants would otherwise receive. Whether a fiduciary breach diminishes plan assets payable to all participants and beneficiaries, or only to persons tied to particular individual accounts, it creates the kind of harms that concerned the draftsmen of §409. Consequently, our references to the “entire plan†in Russell, which accurately reflect the operation of §409 in the defined benefit context, are beside the point in the defined contribution context.
Other sections of ERISA confirm that the “entire plan†language from Russell, which appears nowhere in §409 or §502(a)(2), does not apply to defined contribution plans. Most significant is §404(c), which exempts fiduciaries from liability for losses caused by participants’ exercise of control over assets in their individual accounts. See also 29 CFR §2550.404c-1 (2007). This provision would serve no real purpose if, as respondents argue, fiduciaries never had any liability for losses in an individual account.
We therefore hold that although §502(a)(2) does not provide a remedy for individual injuries distinct from plan injuries, that provision does authorize recovery for fiduciary breaches that impair the value of plan assets in a participant’s individual account. Accordingly, the judgment of the Court of Appeals is vacated, and the case is remanded for further proceedings consistent with this opinion.
Note: Excerpts from the concurring opinions:
In the decision below, the Fourth Circuit concluded that the loss to LaRue’s individual plan account did not permit him to “serve as a legitimate proxy for the plan in its entirety,†thus barring him from relief under §502(a)(2) of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U. S. C. §1132(a)(2). 450 F. 3d 570, 574 (2006). The Court today rejects that reasoning. See ante, at 4, 7-8. I agree with the Court that the Fourth Circuit’s analysis was flawed, and join the Court’s opinion to that extent. . . . The Court, however, goes on to conclude that §502(a)(2) does authorize recovery in cases such as the present one. See ante, at 7-8. It is not at all clear that this is true . . .
I see nothing in today’s opinion precluding the lower courts on remand, if they determine that the argument is properly before them, from considering the contention that LaRue’s claim may proceed only under §502(a)(1)(B). In any event, other courts in other cases remain free to consider what we have not-what effect the availability of relief under §502(a)(1)(B) may have on a plan participant’s ability to proceed under §502(a)(2).
[and this footnote: "Sensibly, the Court leaves open the question whether exhaustion may be required of a claimant who seeks recovery for a breach of fiduciary duty under §502(a)(2)."
(Chief Justice Roberts, with whom Justice Kennedy joins, concurring in part and concurring in the judgment.)
And,
I agree with the Court that petitioner alleges a cognizable claim under §502(a)(2) of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U. S. C. §1132(a)(2), but it is ERISA’s text and not “the kind of harms that concerned [ERISA’s] draftsmen†that compels my decision. . . .
Although I agree with the majority’s holding, I write separately because my reading of §§409 and 502(a)(2) is not contingent on trends in the pension plan market. Nor does it depend on the ostensible “concerns†of ERISA’s drafters. Rather, my conclusion that petitioner has stated a cognizable claim flows from the unambiguous text of §§409 and 502(a)(2) as applied to defined contribution plans.
(Justice Thomas, with whom Justice Scalia joined, concurring in the judgment.)
