Industry Insight from Fred Barstein
Recent Supreme Court Decision (LaRue v. DeWolff) Could Change Everything

THE U.S. SUPREME COURT’S recent decision in LaRue v. DeWolff promises to not only change the legal landscape for ERISA plans but could significantly affect the entire DC industry.  The landmark decision acknowledged that plan participants could sue fiduciaries who had breached their duties.  Previous case law had led the lower court to rule that only the plan as a whole, not individuals, could recover damages.  Acknowledging the shift from defined benefit to defined contributions, the Court reasoned that 404(c) protection for plan sponsors based on individual participant decisions would serve no purpose if fiduciaries never had any liability for losses in an individual account in the first place.

While we have seen great improvements in DC plans over the past few years thanks in part to the mutual fund scandals and law suits which have led to greater fee disclosure, more concern by sponsors about their fiduciary liability, and lower costs, a vast majority of smaller plans are badly mismanaged and overpriced.  The remedy can be as simple as hiring knowledgeable plan advisors, but over 80% of plans still employ blind squirrels who are either impervious or ignorant.  Even some experienced advisors are unwilling to rock the boat for obvious reasons.  Sponsors, especially smaller ones, have been slow to move lacking real motivation to make changes that might cause unwanted headaches.  As surrogates for the participant, many have been asleep at the wheel even as employees have begun to complain about the high fees and poor investment options they are reading about in the press.

Count on the attorneys’ bar to change everything and invite participants to assert their rights to claim damages on account of high fees and poorly selected and monitored investments.  Even those not willing to sue now have the LaRue decision to threaten employers or perhaps politely inform them of potential risks.  The only group really interested and invested in making dramatic change is the plan participant whose retirement rests in the balance.  They now have standing thanks to the Supreme Court and many will get their day in court.

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