In light of the recent market and economic climate, it is important that plan sponsors establish proper due diligence guidelines regarding their plan. There have been recent judicial developments that could impact the way plan sponsors not only administer their plan but also how participant information is provided. For the next three weeks, we will focus on three recent court cases: (1) LaRue v. DeWolff (2) Gertjejansen v. Kemper Ins. Co. (3) Kennedy v. Plan Administrators for Dupont Savings.
LaRue v. DeWolff
Background:
James LaRue was a participant in DeWolff, Boberg & Associates’ 401(k) plan since 1993. He alleged that his retirement account balance was short approximately $150,000 because the administrators of DeWolff failed to carry out his instructions to make certain investment changes to his account in 2001 and 2002. He sued DeWolff in 2004.
Result:
The case was filed with the 4th U.S. Circuit Court of Appeals in Richmond, VA, who ruled in favor of DeWolff in June 2006. It maintained that participants may sue a fiduciary to make up losses due to a fiduciary breach, but only on behalf of the entire plan, not on an individual participant account. The case was than brought before the Supreme Court which back in February 2008, overturned the District Court’s previous ruling and ruled that the Employee Retirement Income Security Act (ERISA) allows an employee to sue his employer because of a fiduciary breach that resulted in individual losses to his 401(k) plan.
Update:
James LaRue voluntarily dismissed his claim when he recognized that it was too costly to proceed and his previous loss claim of $150,000 could not be substantiated.
Impact:
Participants in 401(k) plans may now sue fiduciaries on an individual basis claiming fiduciary breach. Whether or not there’s an influx of participant initiated lawsuits, based on this new ruling, sponsors should work with their providers to understand and establish proper administrative procedures.
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