In a unanimous decision handed down yesterday, the United States Supreme Court in LaRue v. DeWolff, Boberg & Associates, Inc., No. 06-856, allowed workers to sue to recover losses in their 401(k) plans for mismanagement. In overturning a decision by the Fourth Circuit Court of Appeals, Justice John Paul Stevens wrote that ERISA authorizes "recovery for fiduciary breaches that impair the value of plan assets in a particular individual account." The Supreme Court had previously held in 1985 that in the case of defined benefit plans workers could sue for damages to the plan as a whole. But here, Justice Stevens emphasized that the "landscape had changed" and that defined contribution plans now dominate the retirement plan scene. In such defined contribution plans, fiduciary misconduct need not threaten the solvency of the entire plan to reduce benefits below the amount that participants would otherwise receive. Thus, a worker under ERISA Section 502(a)(2) has a right to bring an action based on fiduciary misconduct affecting his or her own individual accounts.

Of course, simply making a claim and proving it are vastly different. In this case, LaRue brought the action against his former employer and the ERISA regulated 401(k) plan and alleged that DeWolff never carried out certain changes that LaRue had directed to be made to the investments in his individual account. He claimed that this omission depleted his interest in the plan by approximately $150,000. Before any evidence could be adduced, the district court granted a motion for judgment on the pleadings. Whether LaRue will be able to satisfy his burden is an open question.

Moreover, while the Supreme Court was unanimous in the result, a concurring opinion by Chief Justice Roberts, in which Justice Kennedy joined, appeared to at least attempt to soften the impact of the decision. The chief justice suggested that this type of case may actually be brought only under Section 502(a)(1)(B) of ERISA. That section, unlike Section 502(a)(2), would have required LaRue to hurdle other roadblocks, such as exhausting his administrative remedies and having a heavy "abuse of discretion" standard applied to any appeal from an administrative decision. Since this argument had not been raised in either the district court or the court of appeals (and in the Supreme Court only in an amicus brief), Chief Justice Roberts did not consider the Court to be in a position to resolve the issue. He did add, however, that on remand, the lower courts could consider whether the claim may proceed only under Section 502(a)(1)(B) and that "other courts remain free to consider what we have not" concerning the availability of relief under Section 502(a)(1)(B).

The upshot is that while the LaRue decision will almost certainly result in an immediate rise of individual suits, its longer lasting effect is in doubt and depends on the treatment given by the lower courts and possibly future Supreme Court decisions. It is still a significant win for workers, but it remains to be seen whether the flood gates will be permanently opened.