Employment & Benefits Law Update

April 2008

LaRue v. DeWolff, Boberg & Associates, Inc.

The case of LaRue v. DeWolff, Boberg & Associates, Inc., involved a 401(k) plan participant who directed the plan's fiduciaries to make certain changes to the investments in his individual plan account. However, the participant's investment instructions were never carried out. The participant sued the plan fiduciaries, alleging that they breached their fiduciary duties under ERISA and, as a result, his 401(k) account was diminished by approximately $150,000.

The U.S. Supreme Court did not determine whether there was a fiduciary breach or the amount of damages; the Court did decide that the individual participant in this case could go forward with his claim to recover the alleged investment losses to his 401(k) account. Some courts in previous cases held that retirement plan participants could not recover losses to their individual accounts, but could recover losses sustained by the retirement plan as a whole.  This Supreme Court decision confirms that individuals can sue to recover investment losses for their own 401(k) accounts.

This case obviously involves bad facts – hopefully most 401(k) plan sponsors and fiduciaries have procedures in place to make sure that changes to investment directions are timely carried out. However, now is a good time to review your 401(k) plan to reduce or eliminate the risk of participant lawsuits where possible. Employers and plan sponsors should:

  1. Make sure there are clear instructions and procedures for making and carrying out changes to participants' investment directions;
  2. Review the performance of investment options available to 401(k) plan participants at least once each year, with assistance from your broker or registered investment advisor;
  3. Confirm that the “default” investment option for your 401(k) plan meets the requirements for a Qualified Default Investment Alternative under the recently issued DOL regulations; and
  4. Periodically review the fees and expenses charged to 401(k) plan participants to make sure the plan's fiduciaries are aware of all fees and expenses being passed through to participants and that the amounts charged are reasonable, necessary and are permitted under the terms of the 401(k) plan documents.

All changes to the plan investment policies should be documented in writing. Please contact Jim Paul or Jenni Krengel at (916) 444-1000 if you have questions or need assistance.

Please note that the information contained in this newsletter is not intended to provide specific legal advice. You should consult with an attorney and not rely on any information contained herein regarding your specific situation.