Imagine that you are a 401(k) plan participant who, over the course of many years and at a significant sacrifice to your take-home pay, has accumulated a hefty account balance. As your retirement date approaches, you decide to move your plan balance from the moderately aggressive equity funds in which it had been invested to a conservative money market fund. You fill out the on-line account transfer request, sit back, and contemplate the hammock and mystery novel awaiting you on the beach after retirement.
The problem, however, is that — for reasons unknown — your transfer request was never implemented. The market plunged, and now your once-admirable account balance has been reduced by $150,000. After consulting your attorney, you conclude that those who are responsible for administering your plan have breached their fiduciary duties under ERISA, and you file suit to recover your losses. Easy case, right? Well, maybe not.
Both the Third and Fourth U.S. Circuit Courts of Appeals have recently considered cases just like this, and concluded that ERISA provides no remedy to the aggrieved participants. (Fox v. Herzog Heine Geduld, Inc., and LaRue v. DeWolff Boberg & Assocs.) Struggling to interpret confusing Supreme Court precedent on the issue of remedies, these courts ruled that the relief the participants requested was unavailable because it would have benefited only those individual participants, and not the plan as a whole. At least with respect to the particular claims that these participants raised, the courts found that ERISA provides a remedy only if every participant in the plan benefits from it. Thus, the individuals whose accounts were mishandled were left without a remedy.
After inviting comments from the U.S. Justice Department’s Solicitor General (who disagreed with the lower courts’ interpretation), the Supreme Court agreed to consider the LaRue case in its next term. The Court’s decision will be closely watched. If the Third and Fourth Circuits’ restrictive interpretation of ERISA is upheld, we can expect Congress to revise the text of the statute itself.