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United States: 401(k) Plan Participants May Sue Plan Administrators under ERISA

(Mar. 2, 2008) The Supreme Court ruled on February 20 that a participant in a defined contribution pension plan, such as a 401(k) plan, may use a section of the Employee Retirement Income Security Act of 1974 (ERISA) to sue a plan administrator whose misconduct impaired the value of the participant's individual account.

Section 502(a)(2) of ERISA authorizes participants in retirement plans to bring actions on behalf of a plan against administrators for violations of fiduciary duties. A 1985 Supreme Court opinion ruled that a participant in a traditional, defined benefit pension plan could only sue for relief that would benefit the pension plan as a whole. Some federal courts interpreted this precedent to preclude participants in defined contribution plans from suing under section 502(a)(2). When James LaRue sued his former employer under section 502(a)(2) for failing to follow his instructions with respect to the investments in his 401(k) plan, the district court and the U.S. Court of Appeals for the Fourth Circuit rejected LaRue's case as contrary to the Supreme Court precedent.

Reversing, the Supreme Court held that section 502(a)(2) authorizes participants in defined contribution plans to sue plan administrators for fiduciary breaches. The Court distinguished its 1985 precedent as primarily focused on the defined benefit plan context. It concluded that an individual participant in a defined contribution plan may use section 502(a)(2) to sue for recovery for harms arising from an administrator's fiduciary breaches that impair the value of plan assets in a participant's individual account. (LaRue v. DeWolff, Boberg & Associates, Inc., No. 06-856 (Feb. 20, 2008) available at http://www.supremecourtus.gov/opinions/07pdf/06-856.pdf.)