Supreme Court Requests Govt. Input on 401(k) Plan Restoration Case
Justices extended the invitation this week to the U.S. Solicitor General, who represents the government before the high court, about whether Section 502 of the Employee Retirement Income Security Act (ERISA) allows a participant to sue to recover their money in the instance of a fiduciary breach.
The court has not yet decided whether to accept an appeal by James LaRue of a 4 th U.S. Circuit Court of Appeals decision
in June 2006 that Section 502(a)(3) did not authorize a claim for “equitable restitution,” while Section 502(a)(2) of the act did not authorize an action against a plan fiduciary for the benefit of an individual participant (See Court Turns Down Participant Claim for Account Restoration ).
LaRue, an employee of DeWolff, Boberg & Associates, a management consulting firm, was a participant in DeWolff’s 401(k) plan. In 2001 and 2002, LaRue claimed, he directed DeWolff to change the investments in his plan account but that his directions never were carried out.
LaRue sued the company alleging that the consulting firm breached its ERISA fiduciary duties by failing to follow his investment directions. He argued that DeWolff’s fiduciary breach should be remedied by payment of $150,000, the loss in value that LaRue claimed his plan account sustained.
The district court dismissed the lawsuit, finding that LaRue did not request appropriate equitable relief under ERISA and concluding that Section 502(a)(3) did not authorize the lawsuit against DeWolff.
Before the 4th Circuit, LaRue contended that the restitution he sought for the alleged loss to his plan account was a form of equitable relief authorized by ERISA. But the panel disagreed, stating, that “Plaintiff does not allege that funds owed to him are in defendants’ possession, but instead that these funds never materialized at all.” The panel said LaRue “gauges his recovery not by the value of defendants’ nonexistent gain, but by the value of his own loss – a measure that is traditionally legal, not equitable.”
The appellate judges also rejected the argument that Section 502(a) (2) could authorize the relief sought by La Rue. The court contended instead that Section 502(a)(2) allows participant suits against fiduciaries but only for relief benefiting the plan as a whole.
The U.S. Department of Labor (DoL) filed a brief with the appellate court backing LaRue, but 4 th Circuit judges did not accept the agency’s position. The DoL brief argued that Section 502(a)(2) should be read broadly to allow action for individual losses involving fiduciary breaches whenever an individual claim bore any legal relationship to the plan.
In a brief opposing Supreme Court review, DeWolff argued that the 4th Circuit’s reading of Section 502(a)(2) of ERISA was a “straightforward and unremarkable applicable of controlling precedent” that did not indicate any conflict among appellate courts. The 4th Circuit also properly concluded that LaRue’s lawsuit sought money damages not available under Section 502(a)(3), DeWolff contended.
The case is LaRue v. DeWolff, Boberg & Associates, U.S., No. 06-856, order requesting brief 2/26/07.