August 26, 2011
Significant U.S. Supreme Court ERISA Decision

Significant U.S. Supreme Court ERISA Decision

Our firm handles a significant number of ERISA claims for aggrieved employees and plan participants.  ERISA governs most employee benefit actions:  pensions, health plan claims, long-term disability insurance claims, and even employer-sponsored life insurance and accidental death and dismemberment insurance claims.

One of the aggravations of ERISA is the difficulty in making claims against the plan administrator for breaching his, her, or its fiduciary duties to the plan participants and beneficiaries.  Sometimes the people in charge of employee benefit plans do dishonest things, misrepresent important information to plan participants, make dumb investment decisions, or otherwise act inconsistently with their duty to further the interests of the plan participants.  This is a “breach of fiduciary duty.”  These breaches can literally cost employees hundreds of thousands, and sometimes millions of dollars in expected benefits.

ERISA (the Employee Retirement Income Security Act of 1974) has a provision allowing participants to sue for breaches of fiduciary duty  (29 USC 1132(a)(3)).  However, in the last twenty years, the U.S. Supreme Court has hampered the ability to obtain relief under this section.  Previously, the Court held that this part of the statute would only afford “equitable” relief.  Heretofore, this meant any type of relief other than getting the trial court to award a money judgment—which is a “legal remedy.”

All of this arcane discussion of “legal” versus “equitable” remedies was great reading for lawyers, but aggravating to clients. The net result in many cases was that the participant who had been wronged could prevail in proving the bad conduct but could not obtain an award of money.  A useless victory.

However, in May, the Supreme Court added a new “equitable” remedy against wrongdoing plan administrators and fiduciaries.  Per the Supreme Court, a trial court can now impose a “surcharge” as an equitable remedy to make a beneficiary or plan participant whole.  According to the Court, this is a legitimate “equitable remedy.”

I am no legal scholar.  But, to me, this looks much like an award of money to the participant—i.e., a money judgment.  Previously, this was not permitted.  In my mind, the Supreme Court took over twenty years to come to the obvious conclusion that there must be a remedy when a participant is harmed.  This usually will require money.  My only criticism is that the Court took decades and used convoluted legal reasoning to get to the right result, instead of simply holding that aggrieved participants should be entitled to a money judgment.

Regardless, at this point, it appears that fiduciary breach litigation is now on a stronger footing.  Aggrieved plan participants can now ostensibly ask for money and call it a “surcharge” for their harm.  This is a good thing.