Reverse Mortgage Guide

It’s a win for seniors — and other humans.

The Supreme Court has ruled unanimously that pension managers have a fiduciary obligation to follow lawful instructions from individual savers. The pension industry had argued that individuals could not sue pension managers.

The matter is important in terms of reverse mortgages because a successful pension plan can be combined with a reverse loan to create a comfortable lifestyle.

The case involved James LaRue, a participant in a defined contribution pension plan. He alleged “that the plan administrator’s failure to follow petitioner’s investment directions ‘depleted’ his interest in the plan by approximately $150,000 and amounted to a breach of fiduciary duty,” said the Court.

The plan operator said that ERISA provides remedies only for entire plans, not for individuals.

The Court disagreed, overruled a lower court and said that individuals can take plan operators to court.

“This is a common-sense decision, one that is consistent with the law, and with the realities — and hazards — of today’s retirement savings world,” said Rebecca Davis, staff attorney with the Pension Rights Center. “With today’s ruling, the Supreme Court affirms the right of participants and beneficiaries in 401(k) plans and other defined contribution plans to sue plan trustees whose improper actions caused losses to their individual accounts.”

Former Labor Department Associate Solicitor Marc Machiz, now with Cohen, Milstein, Hausfeld & Toll, PLLC, and David Preminger of Rosen, Preminger & Bloom, wrote the brief on behalf of the Center.

“The Pension Rights Center had contended that the lower court’s decision flew in the face of Congress’ intent that plan assets be protected from losses caused by mismanagement, regardless of whether only some or all of the plan’s participants were injured by that misconduct,” said Mr. Machiz. “We are gratified that the Court agreed with our position.”

“Our satisfaction with the Court’s decision, however, is tempered by a disturbing concurring opinion from Chief Justice Roberts,” Mr. Machiz continued. “In his opinion, the Chief Justice invites lower courts to consider similar cases under a different section of ERISA — a section that might not allow for appropriate remedies in these types of situations. The Chief Justice’s view might relieve the wrongdoer of responsibility, and potentially require money to be taken from other plan participants to pay for the individual’s loss.”

“If embraced by lower courts, this approach could negate the majority decision,” added Ms. Davis. “Interestingly, Justice Roberts’ argument was not made by the defendants, but by an industry group representing employers.”

For a summary, see: LARUE v. DEWOLFF, BOBERG & ASSOCIATES, INC.

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This entry was posted on Friday, February 22nd, 2008 at 3:38 am and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.