The Supreme Court ruled last week that individual participants in 401(k) retirement plans can sue under ERISA to recover their losses, stirring anxiety amongst insurers and others serving as plan advisors.
Specifically, the Court held in a 9-0 decision that the Employee Retirement Income Security Act permits an individual account holder to sue plan administrators for breaching their fiduciary duties.
The case revolved around interpreting language in ERISA that refers to recovering money for the retirement "plan," rather than an individual participant in the plan suing solely on his own behalf.
However, an industry lawyer cautions that a detailed reading of the decision implies the road to the courthouse may be long–and the potential liability to the money management industry may be less than meets the eye.
"The court has decided that an individual can sue under ERISA (the Employee Retirement Income Security Act) for alleged fiduciary breaches in defined contributions plans and recover monetary damages," said Ken Cohen, deputy general counsel and senior vice president at MassMutual, based in Springfield.
MassMutual was cited in the court's opinion in the case, LaRue v. DeWolff Boberg & Associates, Inc., et al, No. 06-856, because the prior precedent on the issue was made through a 1985 case, Massachusetts Mutual Life Ins. Co. v. Russell, , which held that ERISA provides remedies only for entire plans, not for individuals.
"Having said that, the concurring opinion, by Chief Justice John Roberts suggests that the suit should be brought under another section of ERISA relating to claims denial for benefits," Cohen said. "And the implications of that are yet to be determined because the courts will have to interpret that."
Cohen said that section requires plaintiffs to file an administrative claim with the plan and have that claim reviewed before they sue, "which would give fiduciaries a chance to rectify mistakes before a lawsuit was filed.
Secondly, he said, based on prior Supreme Court decisions, "a carefully considered claims review is given great deference by the courts, making it more difficult to recover in a subsequent lawsuit."
He added that "the long and short of it is that, you're going to get differing views from expert benefit lawyers on the long-term implications of this case because of the contrast between the courts' opinion and the concurring opinion of Justice Roberts."
