Earlier this year, the Supreme Court ruled in LaRue v. DeWolff, Boberg & Associates, Inc. that participants in participant-directed retirement plans generally may sue fiduciaries for breach of duty for losses in individual accounts (link here for prior EmployNews article on LaRue). However, in his concurring opinion in LaRue, Chief Justice Roberts indicated that it may be more appropriate to consider requiring such a claim to be designated as a claim for wrongfully denied benefits (rather than a fiduciary breach claim), which in most U.S. Circuit Courts requires claimants first to exhaust administrative remedies before filing suit and then provides for a deferential “abuse of discretion” standard of review over fiduciary determinations. Interestingly, the 11th Circuit ruled in an opinion issued last week, which does not cite LaRue but has similar facts and legal issues, that even plaintiffs suing for fiduciary breach, rather than a claim for benefits, must exhaust administrative remedies before pursuing the case in court.
In Lanfear v. Home Depot, Inc., the 11th Circuit addressed whether a complaint for breach of fiduciary duty regarding diminution in value of a participant’s account is a claim for benefits under ERISA. Without first applying under the plan’s claims procedure for alleged additional benefits due, former Home Depot employees who already had received distributions from the Home Depot 401(k) plan sued to recover losses in their plan accounts that resulted from a drop in the value of Home Depot stock. The plaintiffs alleged that plan fiduciaries breached their duties by continuing to invest in Home Depot stock rather than other alternatives when the price was falling. The lower court dismissed the complaint, finding that the former employees did not have standing to sue for breach of fiduciary duty, and alternatively, that they had not exhausted their administrative remedies under the plan’s claims procedures.
The 11th Circuit reversed the lower court’s decision, holding that a complaint for breach of fiduciary duty that seeks restitution of the diminished value of a participant’s account is a claim for benefits, not for damages, and that the former employees have standing. However, the court rejected the plaintiffs’ argument that since their claim was for breach of fiduciary duty, it did not require exhaustion of administrative remedies. On this issue, the plaintiffs argued that the plan language on both initial review and appeal of claims pertained to claims for benefits, but that their claim was for damages (counter to their earlier standing argument that their claim was for benefits and not damages) such that the plan did not provide an administrative remedy. In rejecting this argument, the court reemphasized its view that the claim was for benefits and noted that the plan’s administrative remedy language covered a “wide range of claims,” including “complaints concerning the investments of Plan assets.” The court also rejected the plaintiffs’ arguments that exhaustion of administrative remedies would have been futile.
While the 11th Circuit in Lanfear blurs the distinction between a claim for benefits and a claim for fiduciary breach in this case, it is in the minority of circuits requiring exhaustion of administrative remedies for claims for fiduciary breach. In the future, this divide may be addressed by the Supreme Court. In the meantime, plan fiduciaries may wish to: (a) consider extending claims procedure language to require submitting complaints about plan investments, and (b) treat all participant claims touching on plan benefits as claims for benefits to which a plan’s claims procedure and other administrative remedies apply.