LaRue and the Participant Disclosure Regulations

Written by: Bob Toth

We have commented in the past on how the REAL impact of the DOL’s “three pronged” disclosure effort lies not in each discrete set of rules, but in how they interact with each other.  Our friend and fellow blogger Jerry Kalish, at National Benefit Services has wryfully dubbed this effect as “The Three Amigos.” This will be tough enough, but their impact gets even more complicated when you take a look at the interplay of the Supreme Court’s decision in LaRue v. DeWolff, Boberg & Associates with the Three Amigos.

Let’s look at the proposed participant disclosure regulations as an example.  The regs are striking because they were made a part of ERISA’s fiduciary rules, not part of its reporting and disclosure rules. This means that a fiduciary would be engaging in a fiduciary breach by failing to provide participants with the information required by the regulation within the time proscribed by that reg.

The LaRue impact?  That case clarified that a plan participant can sue a fiduciary for money damages even if the only harm suffered as a result of the alleged fiduciary breach was felt by one individual account.  Let’s say that a plan failed to provide to plan participants the required quarterly disclosure outlining the amount of plan administrative fees charged against individual accounts in a quarter.  Would not, under LaRue, plan participants be entitled to bring a fiduciary lawsuit against the “responsible plan fiduciary” for failure to properly disclose?  The impact could be significant.  

Let’s even take this a step further and look at section 408(b)(2). Assume that the plan level charge that is required to be disclosed quarterly doesn’t make sense when compared to the data disclosed under the 408(b) (2) regs. It seems that LaRue grants participants the right to pursue fiduciary claims related to these instances as well, as engaging in a non-exempt prohibited transaction is also a fiduciary breach.

We may be seeing the opening of the proverbial Pandora’s box.