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September 24, 2008
Did They Sue for 'Benefits' or 'Damages'?
Three retirees sued the administrators of their retirement savings plan, all alleging that their accounts, when paid to them, had not contained as much money as they should have. They argued that the plan fiduciaries had been irresponsible regarding investments, which devalued their accounts, thus violating the Employee Retirement Income Security Act (ERISA).

What happened. The three men had all retired from W.R. Grace & Co. by 2002, and all had participated in Grace's Employee Savings Plan. Plan administrators had offered, among other investment options, the Grace Stock Fund, containing company shares. Before April 2003, all company contributions to retirement savings accounts were invested in Grace stock. The company had declared bankruptcy 2 years earlier, due to financial pressures from asbestos-related product-liability suits. The stock fund was finally dissolved in April 2004.

One of the men sued in Massachusetts and another in Kentucky, contending that the value of their accounts--and those of other retirees--had been diminished because of continuing investment in the stock. Ironically, the third retiree sued for the opposite reason, contending that the stock fund shouldn't have been dissolved because the share value would have rebounded. The Massachusetts and Kentucky suits were consolidated and then combined with the third man's suit only for pretrial discovery. A federal district court judge in Massachusetts ruled that the plaintiffs were not "participants" in an ERISA plan and that they couldn't sue for compensatory damages. They appealed to the 1st Circuit, which covers Maine, Massachusetts, New Hampshire, and Rhode Island.

What the court said.Appellate judges reviewed similar suits decided in the 3rd (DE, NJ, PA), 6th (KY, MI, OH, TN), and 7th (IL, IN, WI) Circuits, and a 2008 Supreme Court ruling in LaRue v. DeWolff, Boberg. In all four cases, the plaintiffs charging mismanagement of their accounts were allowed to sue for the difference between what they'd been paid and what their accounts should have been worth. Judges agreed that the retirees were participants and that they were suing for the benefits they were owed, not damages (for which ERISA doesn't provide). So the suits were sent back to the lower court for reconsideration. Evans, et al. v. Fidelity Management, State Street Bank and Trust, and W.R. Grace & Co., U.S. Court of Appeals for the 1st Circuit, No.07-1140 (7/18/08).

Point to remember: Defendants argued the benefits couldn't be estimated, but judges said experts could calculate what plaintiffs are owed based on the difference between the stock fund value and those of other investment funds.

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