THE FIDUCIARY CORNER: Fiduciary Liability After LaRue
Gregory L. Ash, Tuesday, April 01, 2008 | Filed under: 401(k) Plans, ERISA Litigation, Fiduciary Duties, Plan Investments
As we reported in our last issue of Benefits in Brief (Volume 2008, No. One, p. 1), the Supreme Court’s latest foray into ERISA left open many questions about the liability of ERISA fiduciaries and the remedies available to plan participants. In LaRue v. DeWolff, Boberg & Assocs., the Court opened the door for individual participants in defined contribution retirement plans (e.g., 401(k) plans) to sue for losses suffered in their own accounts. Although the Court’s ruling allowed Mr. LaRue to proceed with his claim against his employer, it did not decide whether his employer was, in fact, an ERISA fiduciary which could be liable for Mr. LaRue’s alleged losses.
The LaRue decision presents several lessons for employers seeking to minimize their fiduciary risk. One such lesson relates to whether, and when, an employer may be considered an ERISA fiduciary, and thus subject to liability for breach of fiduciary duty. Mr. LaRue’s case involved his employer’s alleged failure to follow his investment direction with respect to his 401(k) account. The facts in that case were not yet sufficiently developed to ascertain whether the employer had fiduciary responsibility with respect to such investment directions. In many cases, the responsibility for receiving and implementing such directions rests with the plan’s recordkeeper, rather than the plan sponsor. In such instances, the employer would have a strong argument that it is not a proper defendant, even if the employer could be considered an ERISA fiduciary for other purposes. This is because ERISA imposes fiduciary liability only to the extent that a party acts as a fiduciary.
On the other hand, if Mr. LaRue’s employer had some responsibility for receiving investment change forms from plan participants, and then forwarding those forms to the plan’s service provider, it may bear some fiduciary risk. Exercising authority over such forms could be construed as sufficient control over plan assets to make the employer a fiduciary for this purpose. Thus, plan sponsors should think twice about acting as a conduit for investment direction forms. Moreover, plan documents should carefully – and accurately – describe how investment directions are to be made, and to whom they are to be delivered.