The U.S. Supreme Court in LaRue, albeit in a footnote, endorsed the holding that participants who cashed out of defined benefit plans did not lose standing to assert claims under section 502(a)(2) for losses to their plans that diminished the amount in their accounts at the time they cashed out. I'd have thought that the opportunity for mischief in these cases was nearly at an end, particularly in light of the the Third Circuit's thorough and scholarly opinion in Graden v. Connexant, decided just last year. In that opinion, the court was at great pains not only to hold that standing existed to bring a case under section 502(a)(2) to restore losses to the plan, but to once and for all reject the dichotomy between a claim for benefits and a claim for losses. The Court was quite clear that although the the participant might have standing to seek benefits under section 502(a)(1)(B), such a claim was hardly sensible, because the money would have to come from other particpant's accounts, a result that ERISA probably would not permit. The Graden court explained that "...the sensible route is to use section 1132(a)(2) to get the money in the first instance from a solvent party liable to make good on the loss, not from the plan itself."
So while a participant ultimately seeks benefits, he does so by pursuing a loss to the plan under section 502(a)(2) that must be allocated not merely to those participants who have received no distribution, but to those cashed out with diminished accounts. If cashed out participants could not share in such a recovery "the plan would recover money that could only properly be allocated to people no longer in the plan." If a participant or fiduciary pursued such a claim for the plan and no such allocation were possible "it is unclear what the plan would be entitled to do with the money...if we are to take the trust law analogy seriously, then the recovered funds must go to to the people actually sustaining losses."
In short, the dichotomy between a suit to recover losses for the plan and a suit for benefits is a false one. The participant sues to recover the loss to the plan, relief specifically provided for in ERISA section 409. He has standing, because any recovery for the plan must be allocated to the affected accounts, regardless of when a participant cashed out, before or during the litigation.
Notwithstanding the conceptual clarity introduced by the Third Circuit, the Eleventh Circuit in Lanfear v. Home Depot, purporting to agree with Graden ignores its teaching and resorts to the discredited benefits v. damages dichotomy. While the decision makes clear that the claim asserted by the participants was a breach of duty causing losses to the plan that allegedly diminished participant accounts, just as in Graden, the court says definitively it is claim for benefits, not damages. This view certainly supports the eccentric Eleventh Circuit view that there must be exhaustion of administrative remedies in fiduciary breach claims, though it is a mystery how such procedures can afford relief against plan fiduciaries, but it does nothing to advance understanding. As the Third Circuit recognized, meaningful relief must come not from the plan but from breaching fiduciaries (and we would add sometimes non-fiduciaries under Harris); these are claims for the plan that will result in the recovery of money that must, in a defined contribution plan, be used for benefits; they are not literally claims for benefits that could be brought under 502(a)(1)(B). The courts need to distinguish between their own rhetoric and actual statutory language; the "claim for benefits" rhetoric could cause as much mischief as the "plan as a whole" rhetoric from Russell. That singular bit of linguistic sloppiness caused years of confusion and took a Supreme Court decision to correct.
I figured that since one must exhaust fiduciary claims in the 11th, the silly sloppy semantics died a quiet death. Otherwise, in a Circuit that thinks, once the fiduciary breach is remedied, the monies returned to the plan, and the monies distributed amongst the accounts, if you are not satisfied with how the monies were distributed to your account, then, and only then, do you have a "benefits" (a1B) claim that must be exhausted.
That's my argument and I'm stickin' to it.
Posted by: Ron Dean | August 15, 2008 at 04:19 PM