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October 02, 2008
Did 'Participants' Seek Benefits or Damages?

A group of retired The Home Depot employees sued the administrators of their retirement savings plan, accusing them of fiduciary misconduct in the operation of the plan. Specifically, they asserted that corporate officials backdated The Home Depot stock options and made other fraudulent transactions, thus lowering the value of employee accounts."

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What happened. On behalf of all other plan participants since June 2001, a group of retirees filed suit against The Home Depot in a New York federal district court. The officials' misconduct, they charged, had artificially inflated the value of The Home Depot stock in individuals' accounts, thus reducing their payouts on retirement—a violation of the Employee Retirement Income Security Act (ERISA).

The suit was transferred to a Georgia federal court, where The Home Depot argued that the retirees were no longer plan participants, that ERISA doesn't allow plaintiffs to sue for damages under such a plan, and that the plaintiffs hadn't "exhausted their administrative remedies." That final phrase meant the plan directed participants to take any complaints to the administrators of the plan. The judge accepted those arguments and dismissed the suit. The plaintiffs appealed to the 11th Circuit, which covers Alabama, Florida, and Georgia.

What the court said. The only thing unclear about this case, because the opinion doesn't say, is how this retirement savings plan is structured. We will assume that it is a 401(k)-type plan in which employees direct how they want their own contributions invested, but administrators directed that all company contributions are or were to be invested in The Home Depot stock. Appellate judges first ruled, following cases in several other circuits, that the plaintiffs are indeed still plan participants. While agreeing with The Home Depot that ERISA doesn't allow beneficiaries to sue for damages, judges further ruled that the plaintiffs are seeking the additional benefits to which they feel they are entitled, not damages. Again, that is similar to decisions made in other circuits.

But on the third point, judges agreed with the lower court, saying that the plaintiffs should first have complained to plan administrators before suing. So the lower court will decide whether to give them a chance to do so or dismiss their suit again. Lanfear et al. v. Home Depot, Nardelli, et al., U.S. Court of Appeals for the 11th Circuit, No. 07-14362 (7/31/08).

Point to remember: Not all circuits have required participants to complain first to plan administrators before suing. These plaintiffs argued they'd be complaining to the same people who had breached their fiduciary duties.

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