LaRue v. DeWolfe: Modifying ERISA Remedies
In LaRue v. DeWolfe, decided by the Supreme Court on February 20, the US Supreme Court validated the ability of individual plan participants to seek remedies for breach of fiduciary duty outside of traditional "plan" remedies. As previously interpreted, remedies for breach of fiduciary duties were limited to those for the plan as a whole. LaRue forces plan administrators to rethink this posture. The decision clarifies that, for individual account plans, remedies for the individual account are akin to remedies for the plan at large. This means individual participants can now seek relief even if the only injury to the plan was to their individual account.
The impact of this decision will probably be most readily felt by administrators of 401(k) plans and other defined contribution plans that have participants that actively change investment directives or directly transmit investment instructions to outside advisors or custodians. The participant will assume that the plan fiduciary is guaranteeing that the instructions will be correctly followed. For plans utilizing self-direction of investments, it would be worthwhile for fiduciaries to consider educating participants about their individual responsibilities to monitor account activities and how important it is for them to notify the fiduciary of any problems. Fiduciaries could also consider using a separate provision in participation agreements that provide some measure of protection by obligating the participant to provide notice.
From my perspective, the decision should serve as a warning to fiduciaries that they have to establish definitive, written investment procedures and then be prepared to adhere to those procedures to avoid potential claims.
