No. 04-56136
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
____________________________________________________
MICHAEL MILOFSKY, et al.
Plaintiffs-Appellants,
v.
AMERICAN AIRLINES, INC., et al.
Defendants-Appellees.
____________________________________________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
____________________________________________________
BRIEF AS AMICUS CURIAE ELAINE L. CHAO, SECRETARY OF THE UNITED STATES DEPARTMENT OF LABOR SUPPORTING THE PLAINTIFFS'-APPELLANTS' PETITION FOR REHEARING EN BANC
For the Secretary of Labor:
HOWARD M. RADZELY
Solicitor of Labor
TIMOTHY D. HAUSER
Associate Solicitor, PBSD
ELIZABETH HOPKINS
Counsel for Appellate and Special Litigation
U.S. Department of Labor
P.O. Box 1914
Washington,
D.C.
20013
(202) 693-5600
TABLE OF
CONTENTS
TABLE OF AUTHORITIES
INTEREST OF THE SECRETARY
ARGUMENT
I. THE PANEL'S DECISION IS OF
EXCEPTIONAL IMPORTANCE BECAUSE OF ITS LIKELY IMPACT ON PLANS
II. THE PANEL'S HOLDING CREATES A
CONFLICT WITH A DECISION OF THE SIXTH CIRCUIT
CONCLUSION
CERTIFICATE OF SERVICE
CERTIFICATE OF COMPLIANCE
TABLE OF AUTHORITIES
Cases:
Bannistor v. Ullman, 287 F.3d
394 (2002)
Donovan v. Cunningham, 716 F.2d
1455 (5th Cir. 1983)
Harris Trust & Sav. Bank v. Salomon
Smith Barney Inc., 530
U.S. 238 (2000)
Kling v. Fid. Mgmt. Trust Co.,
270 F. Supp. 2d 121 (D.
Mass. 2003)
Kuper v. Iovenko, 66 F.3d 1447
(1995)
Langbecker v. Elec. Data Sys.,
No. 04-41760 (5th Cir. filed Dec. 29, 2004)
Massachusetts Mutual Life Insurance
Co. v. Russell, 473
U.S. 134 (1985)
Matassarin v. Lynch, 174 F.3d
549 (5th Cir. 1999)
Milofsky v. American Airlines, Inc., No. 03-11087, 2005 WL 605754 (5th Cir. Mar. 16, 2005)
Nachman Corp. v. Pension Benefit
Guar. Corp., 446
U.S. 359 (1980)
Schultz v. Kirkland, Case No.
CV-00-1377-HA (D. Or. filed Oct. 10. 2000)
Secretary of Labor v. Fitzsimmons,
805 F.2d 682 (7th Cir. 1986)
Steinman v. Hicks, 352 F.3d 1101
(7th Cir. 2003)
Tittle v. Enron, No. 01-3913
(S.D. Tex. filed Nov. 13, 2001)
In re Unisys Sav. Plan Litig.,
74 F.3d 420 (3d Cir. 1996)
United States Department of Labor v.
Kirkland, No. CV-02-441-HA (D. Or. filed Apr. 4. 2002)
Varity Corp. v. Howe, 516
U.S. 489 (1996)
In re WorldCom ERISA Litig., 263
F. Supp. 2d 754 (S.D.N.Y. 2003)
Statutes and Regulations:
Employee Retirement Income Security Act of 1974, as
amended 29 U.S.C. 1001, et seq.:
Section 2(a), 29 U.S.C.
1001(a)
Section 2(b), 29 U.S.C. 1001(b)
Section 3(34), 29 U.S.C. 1002(34)
Section 403(a), 29 U.S.C. 1103(a)
Section 409, 29 U.S.C. 1109
Section 409(a), 29 U.S.C. 1109(a)
Section 502, 29 U.S.C. 1132
Section 502(a)(2), 29 U.S.C. 1132(a)(2)
Section 505, 29 U.S.C. 1135
IRC 401(a)
Fed. R. App. 35(b)(1)(A)
Other Authorities:
David A. Littell et al., Retirement Savings Plans:
Design, Regulation, and Administration of Cash or Deferred
Arrangements 6 (1993)
See Rev. Rul. 89-52, 1989-1 C.B. 110, 1989 WL
572038 (Apr. 10, 1989)
Board of Governors of the Federal Reserve Sys., Flow
of Fund Accounts of the
United States: Annual Flows and
Outstandings, Second Quarter 2004, Fed. Res. Statistical Release
Z.1 (Sept. 16, 2004)
Profit Sharing/401k Council of
America, 47th Annual Survey of Profit Sharing and 401(k) Plans: Overview of Survey
Results, available at
www.psca.org/DATA/47th.html.
Colleen E. Medill, Stock Market Volatility and 401(k)
Plans, 34 U.
Mich. J.L. Reform 469 (2001)
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INTEREST OF THE SECRETARY
The Secretary of Labor (the "
Secretary" ) has primary authority to interpret and enforce the provisions of
Title I of ERISA. 29 U.S.C. 1132, 1135. See Donovan v.
Cunningham, 716 F.2d 1455, 1462-63 (5th Cir. 1983). The Secretary's
interests further include promoting the uniform application of the Act,
protecting plan participants and beneficiaries, and ensuring the financial
stability of plan assets. Secretary of Labor v. Fitzsimmons, 805
F.2d 682 (7th Cir. 1986) (en banc). This case presents a question
concerning the duties of fiduciaries with regard to individual account plans.
Read broadly, the decision of the panel could undermine, if not eliminate, the
ability of participants in such plans (and perhaps the Secretary) to bring
suit on behalf of the plan under sections 502(a)(2) and 409(a), 29 U.S.C.
1132(a)(2), 1109(a), to remedy fiduciary breaches where not every plan
participant's account has suffered a loss. This is likely to effectively
remove from the remedial reach of ERISA $1.75 trillion in plan assets held in
401(k) plans. The Secretary has a strong interest in ensuring that this
Court does not reach such a result.
ARGUMENT
The plaintiffs, 218 pilots who were
participants in a 401(k) plan, brought suit under ERISA section 502(a)(2), 29 U.S.C. 1132(a)(2), after their company was acquired by American Airlines and
their account balances were transferred from another plan in an allegedly
untimely and imprudent manner. Milofsky v. American Airlines, Inc.,
No. 03-11087, 2005 WL 605754, at *1 (5th Cir. Mar. 16, 2005). They sued the
fiduciaries of the American plan, as well as the benefits consulting firm for
the plan, alleging they were misled about how the transfer would be
accomplished, and that because of fiduciary breaches with regard to the
timeliness of the transfer, the value of their accounts, and thus the overall
value of the plan, decreased.
Id. They requested actual damages to be paid to
the plan and allocated among their individual accounts.
Id.
Relying on Massachusetts Mutual
Life Insurance Co. v. Russell, 473 U.S. 134 (1985), the panel affirmed the
district court's dismissal of the case, holding that " plaintiffs lack
standing because this case in essence is about an alleged particularized harm
targeting a specific subset of plan beneficiaries . . . who seek only to
benefit themselves and not the entire plan as required by 502(a)(2)."
Milofsky, 2005 WL 605754, at *7. En banc rehearing is warranted because,
read broadly, the panel's ruling eliminates the ability of participants in
individual account plans, as well as the Secretary, to sue the fiduciaries
under sections 409(a) and 502(a)(2) of ERISA, 29 U.S.C. 1109(a) and
1132(a)(2), and obtain monetary relief for the plan, when alleged fiduciary
breaches affected some, but not all (or most), of the plan participants'
accounts. Moreover, the decision creates a conflict on the issue with the
decision of the Sixth Circuit in Kuper v. Iovenko, 66 F.3d 1447
(1995). See Fed. R. App. P. 35(b)(1)(A) (a conflict with the
decision of other circuits is of exceptional importance and justifies en banc
rehearing). Because the result reached by the panel is unwarranted by
Supreme Court and prior Fifth Circuit precedent and is inconsistent with the
plain language of the statute and its purposes, this Court should hear the
case en banc and reverse the decision of the panel.
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I. THE PANEL'S DECISION IS OF EXCEPTIONAL IMPORTANCE BECAUSE OF ITS LIKELY
IMPACT
ON PLANS
By reading section
502(a)(2) to disallow enforcement by plan participants who allege fiduciary
breaches that harmed the accounts of some but not all plan participants, the
decision is likely to adversely affect all 401(k) plans and all other defined
contribution plans that offer a number of investment options to plan
participants. All pension plans under ERISA are either defined benefit or
defined contribution plans. See Nachman Corp. v. Pension Benefit
Guar. Corp., 446
U.S. 359, 364 n.5 (1980) (describing
the two types of plans). Under section 3(34) of ERISA, 29 U.S.C. 1002(34),
a defined contribution plan is a " pension plan which provides for an
individual account for each participant and for benefits based solely upon the
amount contributed to the participant's account, and any income, expenses,
gains, and losses, and any forfeitures of accounts of other participants which
may be allocated to such participant's account." The plan's assets
consisting of all contributions and earnings are statutorily required to be
held in trust by one or more trustees who have authority and discretion to
manage and control the assets of the plan. See 29 U.S.C. 1103(a);
IRC 401(a). The " contributions are made to a single funding vehicle," and
" as amounts are contributed to the trust," (and as earnings and losses occur
within particular investments) these amounts " are allocated to the
participant's account" through accounting or bookkeeping entries. David A.
Littell et al., Retirement Savings Plans: Design, Regulation, and
Administration of Cash or Deferred Arrangements 6 (1993). Thus, although
the plan assets are allocated to individual " accounts" in this manner,
ownership of the accounts or their assets never passes to the participants;
rather legal title of all the trust assets is held by the trustee. See
Rev. Rul. 89-52, 1989-1 C.B. 110, 1989 WL 572038 (Apr. 10, 1989) (" While a
qualified trust may permit a participant to elect how amounts attributable to
the participant's account-balance will be invested, it may not allow the
participant to have the right to acquire, hold and dispose of amounts
attributable to the participant's account balance at will." ) (citations
omitted).
It is estimated that these
defined contribution plans or individual account plans now hold over $2.3
trillion in assets, which is more than half of all pension plan assets. Board
of Governors of the Federal Reserve Sys., Flow of Fund Accounts of the
United States: Annual Flows and
Outstandings, Second Quarter 2004, Fed. Res. Statistical Release Z.1, at
113 (Sept. 16, 2004). Some of these are employee stock option plans (" ESOPs"
) that solely or primarily hold company stock and most likely would not be
affected by the panel's holding. However, 401(k) plans, which typically offer
numerous investment options, hold over $1.75 trillion in assets, according to
Department of Labor estimates based on Form 5500 filings by plans.[1]
All of these 401(k) plans and their participants potentially will be
negatively affected by the panel's decision because even in plans where all
participants hold employer stock, not every participant will be invested in
every option.
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Thus, while the panel's
decision will not affect such cases as Tittle v. Enron, No. 01-3913
(S.D. Tex. filed Nov. 13, 2001) and Langbecker v. Elec. Data Sys. (EDS),
No. 04-41760 (5th Cir. filed Dec. 29, 2004), where, because of the employers'
matching contributions in company stock, every plan participants' account is
likely to have been directly affected by the alleged fiduciary mismanagement
of the company stock funds, it is likely to preclude all suits for losses to
these plans with regard to fiduciary mismanagement or malfeasance of every
other investment option held by such 401(k) plans. In such plans, because it
is highly unlikely that every participant will be invested in every other
(non-employer stock) investment option during a given period, the investment
decisions and actions of fiduciaries with regard to these options will not be
subject to regulation under ERISA sections 409 and 502(a)(2) if the panel's
decision is allowed to stand. This would preclude, for instance, suits such
as the one brought by plan participants against the Unisys Corporation for
imprudently investing in a contract purchased from Executive Life Insurance
Co. just before the insurance company was placed in receivership. In re
Unisys Sav. Plan Litig., 74 F.3d 420 (3d Cir. 1996).[2]
Similarly, the panel's ruling would preclude a suit under section 502(a)(2),
such as the one at issue in Bannistor v. Ullman, 287 F.3d 394 (2002),
against fiduciaries who fail to forward employee contributions to their plans,
so long as the fiduciaries merely pocket the contributions of some, rather
than all, participants. Moreover, if left standing, the panel's ruling would
preclude the suit brought by the participants in the WorldCom plan to recoup
the enormous losses to their 401(k) plan stemming from serious fiduciary
malfeasance and undisclosed corporate wrongdoing, simply because the company
did not provide a match in company stock and consequently not every
participants' accounts held investments in such stock. In re WorldCom
ERISA Litig., 263 F. Supp. 2d 754, 754-55 (S.D.N.Y. 2003).
These results are not only
unwarranted under the statute, they are also antithetical to the primary
purpose of ERISA, which is designed to prevent " the misuse and mismanagement
of plan assets," Russell, 473 U.S. at 140 n.8, as well as to the
specific purposes of section 502(a)(2), which is designed to allow suits to
enforce " fiduciary obligations related to the plan's financial integrity," in
accordance with the " special congressional concern about plan asset
management" reflected in section 409. Varity Corp. v. Howe, 516
U.S. 489, 511, 512 (1996).
Indeed, consistent with its
broad protective purposes, the plain statutory terms of section 409(a)
expressly provide for recovery of " any losses" to the plan caused by a
fiduciary breach. 29 U.S.C. 1109(a). And ERISA section 502(a)(2), in turn,
permits an action to be brought by plan participants, fiduciaries or the
Secretary for " appropriate relief under 409." 29 U.S.C. 1132(a)(2).
These provisions do not, as the panel's decision assumes, limit a suit under
section 502(a)(2) to those seeking to recover " losses to the plan as a
whole," and given the " evident care" with which the civil enforcement
provisions were crafted, Russell, 473 U.S. at 140, 147, the panel erred
in reading such a limitation into the provisions where none is expressly
stated. See Harris Trust & Sav. Bank v. Salomon Smith Barney Inc.,
530
U.S. 238, 246 (2000) (refusing to
read a limitation into the possible defendants under section 502(a)(3));
cf. Varity, 516
U.S. at 515 (" We are not aware of
any ERISA-related purpose that denial of a remedy would serve." ).[3]
As the panel correctly stated, the court's " 'task is to apply the text, not
to improve upon it.'" Milofsky, 2005 WL 605754, at *7 (citation
omitted).
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This is not to suggest that
the decisions of the Supreme Court in Russell and of this Court in
Matassarin v. Lynch, 174 F.3d 549 (5th Cir. 1999), are wrong. Rather, as
Judge King stated in her dissent from the panel's decision, " [b]oth of these
cases are distinguishable from the present case, and neither justifies the
majority's conclusions." Milofsky, 2005 WL 605754, at *8.
Unlike this case,
Russell involved a claim by a plaintiff for direct recovery of individual
damages stemming from a denial of plan benefits. In Russell, a plan's
disability committee terminated and then reinstated a participant's disability
benefits. Claiming losses from the interruption in benefit payments, the
participant brought suit under section 502(a)(2) for compensatory and punitive
damages, payable not to the plan for a loss of plan assets, but directly to
the individual participant for injuries she personally sustained. 473
U.S. at 137-38. After reviewing the
text of section 409, the provisions defining the duties of a fiduciary and the
provisions defining the rights of a beneficiary, the Supreme Court held that
the participant did not have standing to seek extra-contractual compensatory
or punitive damages for improper or untimely processing of a benefit claim
under sections 409 and 502(a)(2) of ERISA. Although sections 409 and
502(a)(2) of ERISA provide for the recovery of plan losses, the Court held
that those remedial provisions do not create an extra-contractual remedy for
the individual injuries sustained by the participant in connection with her
benefit claim. In so holding, the Court stated " that recovery for a
violation of 409 inures to the benefit of the plan as a whole."
Id. at 140.
Russell
distinguished relief to be paid to a plan as damages for the mismanagement of
plan assets, as sought here, from relief to be paid to an individual as
damages for personal pain and suffering caused by a benefit payment delay, as
sought in Russell, 473
U.S. at 143-44. In Russell,
the plaintiff sought individualized relief, payable to herself, for alleged
injuries that she personally incurred without regard to whether the plan had
suffered any loss or diminution of assets. She did not allege any injury to
the plan or reduction of its assets, nor did she seek a recovery payable to
the plan. Thus, the language in Russell that recoveries under sections
409(a) and 502(a)(2) must " inure[] to the benefit of the plan as a whole,"
id. at 140, cannot in any way be read to suggest, much less require, that
losses are recoverable under sections 409(a) and 502(a)(2) only if they are
allocated to every participant in the plan.[4]
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Nor does the
Matassarin case in any way support this reading of section 502(a)(2). The
plaintiff in Matassarin was a beneficiary in an ESOP by virtue of a
qualified domestic relations order (" QDRO" ) obtained at the time of her
divorce. She brought suit alleging that her account balance under the QDRO
was miscalculated and she sought an immediate benefit distribution. She also
alleged that the plan fiduciaries had breached their duties by failing to
comply with the tax code, which jeopardized the tax qualified status of the
plan, by buying back shares of stock from a few participants who cashed out of
the plan for less than fair market value, and by failing to diversify her
account. As the Court there correctly noted, only the allegation regarding
the plan's tax qualification was properly brought under section 502(a)(2)
because it involved the interest of the plan as a whole. 174 F.3d at 565-66.
The Court held that the allegation that the stock of those who received
distributions was purchased back for less than fair market value, only
asserted harm to those who cashed out, not to the plan itself, and that,
similarly, the failure to diversify the plaintiff's account was consistent
with the QDRO's terms and did not cause any losses to the plan.
Id. at 567-68.
As Judge King noted in her
dissent, Matassarin is easily distinguishable on a number of bases,
Milofsky, 2005 WL 605754, at *9, most saliently because the plaintiff
there did not, and could not, assert a diminution of the plan's assets, but
instead claimed that she had been treated differently than other plan members
and sought only a distribution of her benefits. Contrary to the panel's
suggestion that the plaintiffs here are simply requesting " that damages be
paid to the plan instead of directly to" themselves, id. at *3; in
fact, because the plaintiffs are not currently entitled to a distribution of
benefits, the relief they seek can only " be paid to the plan and then
distributed within it to individual accounts."
Id. at *9 (King, J., dissenting). This
distinction is not formalistic, but is essential to an understanding of the
nature of the plan and its assets.
The panel's decision does
indicate that a suit that affected less than all of the participant accounts
could " inure[] to the benefit of the plan, . . . when the suit seeks
to vindicate the rights of the plan as an entity when alleged fiduciary
breaches targeted the plan as a whole." 2005 WL 605754, at *12 n.16
(emphasis in original). We agree with Judge King that this exception, which
is not grounded in the statute, is unsatisfactory because the majority does
not " explain how a court should determine if an alleged fiduciary breach
targeted the plan as a whole."
Id. at *12 n.3. Furthermore, although we argued
in our amicus brief in EDS, No. 04-41760, that the breaches alleged
there (imprudence with regard to the selection and retention of a particular
stock option for the plan) were clearly so targeted because they concern the
imprudent nature of an investment option, not for any one individual, but for
the plan as a whole, we nevertheless think the distinction is essentially
unworkable in a great many other situations. For instance, if the panel is
correct in its questionable conclusion that the breaches alleged in
Milofsky mismanagement in the transfer of plan assets are not targeted
at the plan as whole, it would seem that other breaches, such as allowing
excessive fees to be charged with regard to an individual investment option,
would likewise not be remedial under section 502(a)(2). This result is not
warranted for all the reasons discussed above. Instead, we believe the
appropriate question is whether the claim alleges something like damages
resulting from a failure to pay someone a benefit due (which is really akin to
an individual claim against the plan, not on behalf of the plan) or
instead alleges that the fiduciary took some action with respect to the
investment of plan assets (including those allocated to individual accounts)
that violated fiduciary obligations such as offering participants as an
investment option the fiduciary's brother-in-law's get-rich-quick scheme.
The fact that less than all plan participants decided to go with the
get-rich-quick scheme as an investment option should not, as a matter of law
or logic, provide a defense for the fiduciary from an ERISA claim.
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II. THE PANEL'S HOLDING CREATES A CONFLICT WITH A DECISION OF THE SIXTH
CIRCUIT
The panel's decision is of
exceptional importance for another reason: it creates a conflict with the
Sixth Circuit's decision in Kuper, which, on similar facts, rejected
the reading of section 502(a)(2) adopted by the court here that disallows a
claim for plan losses stemming from fiduciary breach if not all participant
accounts would benefit from a recovery. See Milofsky, 2005 WL
605754, at *12 n.19 (recognizing an " arguable conflict" with Kuper);
id. at *7 (King, J., dissenting) (the " majority's holding . . .
squarely conflicts" with Kuper).
As here, Kuper also
involved a delay in the transfer of assets of a group of participants from one
plan to another and a diminution in the value of the assets during the delay.
The defendants alleged that the plaintiff class failed to state a claim for
breach of fiduciary duty under section 409 because the class did not include
all of the plan's beneficiaries. 66 F.3d at 1452. The Sixth Circuit cited
cases holding that recovery under section 409 must go to the plan, and stated
that the relevant cases " distinguish between a plaintiff's attempt to recover
on his own behalf and a plaintiff's attempt to have the fiduciary reimburse
the plan."
Id. at 1452-53. The Sixth Circuit concluded
that a subclass of plan participants may sue for a breach of fiduciary duty
under section 409 reasoning that " Defendants'
argument that a breach must harm the entire plan to give rise to liability
under 409 would insulate fiduciaries who breach their duty so long as the
breach does not harm all of a plan's participants. Such a result clearly
would contravene ERISA's imposition of a fiduciary duty that has been
characterized as " the highest known to law."
Id. at 1453 (citation omitted).
AccordKling v. Fidelity Mgmt. Trust Co., 270 F. Supp. 2d 121, 126-27 (D.
Mass. 2003). See also Steinman v.
Hicks, 352 F.3d 1101 (7th Cir. 2003) (clarifying that a claim for losses
relating to financial mismanagement is properly brought under section
502(a)(2) even if the relief ultimately flows to individuals). The Sixth
Circuit's analysis is on target, and the same result should pertain here.
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CONCLUSION
For the reasons discussed above, the
Secretary, as amicus curiae, requests that this Court rehear this matter en
banc and reverse the decision of the panel.
Respectfully submitted this 11th day
of April, 2005.
HOWARD M. RADZELY
Solicitor of Labor
TIMOTHY D. HAUSER
Associate Solicitor
Plan Benefits Security Division
_____________________
ELIZABETH HOPKINS
Counsel for Appellate and Special Litigation
Plan Benefits Security Division
U.S. Department of Labor
Office of the Solicitor
P.O. Box 1914
Washington,
D.C.
20013
(202) 693-5600 (phone)
(202) 693-5610 (fax)
hopkins.elizabeth@dol.gov
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CERTIFICATE OF SERVICE
I hereby certify that two (2) copies of the Brief of
Amicus Curiae Elaine L. Chao, Secretary of the United States Department of
Labor, Supporting the Plaintiffs'-Appellants' Petition for Rehearing En Banc,
along with a diskette in PDF format, were mailed, via federal express
overnight delivery, on this 11th day of April 2005 to the following parties:
Jani K. Rachelson, Esq.
Bruce S. Levine, Esq.
Elizabeth O'Leary, Esq.
Cohen, Weiss and Simon LLP
330 West 42nd Street
New York,
NY
10036
Edward P. Perrin, Jr., Esq.
Jennifer R. Poe, Esq.
Hallet & Perrin, P.C.
2001 Bryan Street
Dallas,
TX 7520l
__________________
Elizabeth Hopkins
CERTIFICATE OF COMPLIANCE
As required by Fed. R. App. 32(a)(7)(B), I certify that
this brief is proportionally spaced, using Times New Roman 14-point font size,
and contains 3,827 words.
I relied on Microsoft Word 2000 to obtain the word count.
Dated: April 11, 2005
___________________
Elizabeth Hopkins
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________________________________
Footnotes:
[1] Such plans are growing rapidly.
According to Department of Labor estimates, total contributions by employers
and employees to 401(k) type plans increased from $152 billion in 1999 to $170
billion in 2000. Moreover, according to a survey conducted in 2003, 82.2% of
eligible employees participated in 401(k) plans. Profit Sharing/401k Council
of America, 47th Annual Survey of Profit Sharing and 401(k) Plans: Overview
of Survey Results, available at
www.psca.org/DATA/47th.html.
[2] Another example is found in
United States Department of Labor v. Kirkland, No. CV-02-441-HA (D. Or.
filed Apr. 4. 2002) (Judge Haggerty) and the companion private class action
Schultz v. Kirkland, No. CV-00-1377-HA (D. Or. filed Oct. 10. 2000) (Judge
Haggerty). In these actions, the Secretary and the private plaintiffs brought
claims under section 502(a)(2) alleging imprudence by the trustees of a
Taft-Hartley plan. The 401(k) plan allowed participants to invest in a number
of funds, such as a cash management fund, a fixed income fund, an equity fund,
a balanced fund, and a private investment fund. The trustees of the 401(k)
plan hired Capital Consultants, LLC (" CCL" ) as the investment manager for
these funds, and CCL, in turn, placed substantial assets in risky private
placement investments including loans that a reasonably prudent lender would
not have made. Virtually all of these loans by CCL were to sub-investment
grade borrowers such as Wilshire Credit Corporation (" WCC" ) and were
inadequately secured. WCC, the largest single borrower from CCL, eventually
filed for bankruptcy, and, as a result, the 401(k) plan lost millions of
dollars. After the 401(k) plan hired CCL as an investment manager, however,
the Plan also added three mutual funds as investment options. Most
participants remained invested in the original funds managed by CCL, but some
chose to move their investments to the newly added mutual funds. Therefore,
when CCL's private placement investments collapsed, it appears that some
participants' accounts did not suffer any losses. The suits to recover these
substantial plan losses would not be allowed under the panel's analysis.
[3] Indeed, Congress declared it to be
the policy of ERISA to protect " the continued well-being and security of
millions of employees and their dependants," as well as employment stability
and commerce, by " establishing standards of conduct, responsibility, and
obligation for fiduciaries of employee benefit plans, and by
providing for appropriate remedies, sanctions,
and ready access to the Federal
courts." 29 U.S.C. 1001(a), (b). Considering these
statements in the statute, it defies common sense to believe that Congress
meant, without expressly saying so, to exempt from the reach of ERISA's
primary remedial provision all individual account plans that suffer losses, so
long as those losses do not affect every participant's account.
[4] Moreover, we agree with Judge King's
observation that Russell does not, in any event, " stand for the
proposition that the 'plan as a whole' is synonymous with 'all participants of
the plan,'" as several courts have recognized. Milofsky, 2005 WL
605754, at *12 n.4, citing Kuper v. Iovenko, 66 F.3d at 1453; Kling
v. Fidelity Mgmt. Trust Co., 270 F. Supp. 2d 121, 124-27 (D.
Mass. 2003); Colleen E. Medill, Stock Market
Volatility and 401(k) Plans, 34 U.
Mich. J.L. Reform 469, 538-39 (2001).
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