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Thursday, February 18, 2010

ERISA Is Complicated so says the 11th Circuit

By Tommy Eden, Attorney

In Lanfear v. Home Depot Inc., (11th Cir. July 31, 2008) the 11th Circuit agreed with the 3rd, 6th and 7th Circuits in ruling that former Home Depot employees qualified as ERISA participants eligible to sue for benefits lost in the decline in value of a defined contribution plan, even though the exact amount lost by them might not be readily ascertainable.

The suit claimed that Home Depot violated its fiduciary duty under the Employee Retirement Income Security Act of 1974 (ERISA) by allowing a defined contribution plan to invest its assets in Home Depot’s stock when backdated stock options to high level executives and other alleged fraudulent transactions artificially inflated the stock’s value. The district court had followed another Circuits’ precedent and held that it lacked subject-matter jurisdiction over the former employees’ claim for breach of fiduciary duty or, alternatively, that the former employees lacked standing to sue for the fiduciary breach because the court could not readily ascertain the impact on individual employees’ benefits of the reduction in plan asset value by reason of the challenged investment, or, alternatively, because the plaintiffs failed to exhaust administrative remedies.

ERISA §502(a)(3) proves a mechanism whereby participants may sue fiduciaries for benefits lost by reason of a breach of fiduciary duty. The appeals court ruled that the district court had mistakenly dismissed for lack of subject-matter jurisdiction because the former employees were participants impacted by a reduction in asset value, even though precise amount lost was still to be determined, by reason of the fraudulent actions by plan fiduciaries. And to sustain the equitable nature of the ERISA claim, the court further ruled that the former employees had standing to bring the action because a complaint “for the decrease in value of a defined contribution account due to a breach in fiduciary duty is not for damages because it is limited to the difference between the benefits actually received and the benefits that would have been received if the plan management had fulfilled its statutory obligations.”

The 11th Circuit did affirm that the former employees were required to exhaust plan administrative remedies, when such remedies were available, and failed to do so. They must do so before bringing a claim for lost benefits under ERISA. The 11th Circuit remanded the action to the district court rather than affirming dismissal for failure to exhaust, reasoning that the district court did not decide whether it would have stayed the proceedings or dismissed without prejudice and allowed the plaintiffs the chance to exhaust administrative remedies.

Common Sense Counsel: if you are an ERISA Plan fiduciary do not invest plan assets in the company stock. There is specific discretionary language, and plan exhaustion requirements, which should not only appear in your ERISA Plan documents, but also in your Employee Handbook. Handbooks should be reviewed by your employment law counsel every 2 years, or every 1 year during a Democratic Administration.

Tommy Eden is a Lee County native, an attorney with the local office of Constangy, Brooks & Smith, LLP and a member of the ABA Section of Labor and Employment Law and serves on the Board of Directors for the East Alabama SHRM Chapter. He can be contacted at or 334-246-2901. Blog at