Legal Opinions - U.S. 4th Circuit Court of Appeals: June 30, 2008

Daily Record, The (Baltimore), Jun 30, 2008

In short, participants in defined contribution plans controlled by ERISA have colorable claims against the fiduciaries of their plans when they allege that their individual accounts in the plans were diminished by fraud or fiduciary breaches and that the amounts by which their accounts were diminished constitute part of the participants' benefits under the plans.

The employees' claims in the instant case were for such additional benefits, not damages, and they therefore had standing to sue under ERISA [section]502(a)(2).

COMMENTARY: Because the Court concluded that the employees had "statutory standing" to bring their claims, it had to decide whether they had constitutional standing, as required by Article III of the U.S. Constitution, for it is conceivable that a person is a member of the class given authority by a statute to bring suit, but nonetheless has not, for example, sustained injury that would be redressable by a favorable decision of the court. See, e.g., Cent. States Southeast & Southwest Areas Health & Welfare Fund v. Merck- Medco Managed Care, L.L.C., 433 F.3d 181, 199 (2d Cir. 2005).

Article III standing is a fundamental, jurisdictional requirement that defines and limits a court's power to resolve cases or controversies. See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 102 (1998). Moreover, "the irreducible constitutional minimum of standing" consists of injury-in-fact, causation, and redressability. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560- 61 (1992).

Here, the first two elements were not at issue. If the employees' allegations were true, they suffered injury in that their retirement accounts were worth less than they would have been absent the breach of duty, and this injury was caused, as the employees have alleged, by the fiduciaries' misconduct. The fiduciaries contended, however, that the employees did not satisfy the third element of constitutional standing - that their injury be redressable by a favorable decision in the litigation.

The fiduciaries contended that even if the employees could prove the merits of their case, it was wholly speculative whether any recovery by the plan would pass through to the employees' individual accounts. Yet, for an injury to meet the redressability standard, "it must be 'likely,' as opposed to merely 'speculative,' that the injury will be 'redressed by a favorable decision'." Lujan, 504 U.S. at 561.

The fiduciaries' argument that restoration of individual accounts would be speculative following any recovery in these cases thus failed to recognize that in a defined contribution plan, it is the plan assets in the individual accounts that are restored -- less, of course, fees and expenses incurred. Accordingly, the redressability problem that arises in defined benefit plans does not exist with respect to defined contribution plans.

In sum, if the Court considered the employees' cases as presented, and accepted the allegations of the complaints as true -- that the fiduciaries breached fiduciary obligations imposed by ERISA [section]409(a) and those breaches had an adverse impact on the value of the plan assets in the employees' individual accounts - then the employees had constitutional standing to bring those claims.