-1-
August 3, 1990
TO: INVESTMENT ADVISER ASSOCIATE MEMBERS NO. 36-90
INVESTMENT ADVISER MEMBERS NO. 40-90
PENSION MEMBERS NO. 32-90
RE: ERISA FIDUCIARY LIABLE FOR COMPENSATORY DAMAGES
__________________________________________________________
The United States Court of Appeals for the Sixth Circuit
recently held that an ERISA plan fiduciary can be held liable for
extracontractual damages under ERISA section 502(a)(3).
The case involved a bank which acted as trustee of a
participant's pension plans. The bank neglected to distribute
all of the participant's plan assets in a single calendar year,
contrary to the participant's instructions. As a result, the
participant was denied rollover treatment for the distribution
occurring in the second year. The participant claimed damages
equal to $375,430 attributable to the lost benefits which would
have resulted had he been able to defer taxes on the distribution
and compound future earnings on the undiminished principal in an
IRA. The trial judge dismissed the participant's case on the
legal finding that extracontractual damages are not recoverable
under ERISA section 502(a).
ERISA section 502(a)(3) provides for an award of
"appropriate equitable relief" for acts or practices that violate
any provision of ERISA or the terms of a retirement plan. The
appeals court stated that other court decisions denying
extracontractual damages for claims under ERISA section 502(a)
were based on claims of punitive damages or compensatory damages
for emotional distress. This case was distinguished from such
cases because, although the bank distributed all the money to
which the participant was entitled, the bank distributed the
funds contrary to his instructions, directly causing a severe
diminution in their value. Thus, "by negligence or an
impermissible purpose," the participant was deprived of a benefit
to which he was entitled under his plans, thereby violating
provisions of the plans and ERISA. The decision of the trial
court was reversed and the case was remanded for further
proceedings.
-2-
-1-
A copy of the court's opinion is attached. We will keep
you informed of related developments.
W. Richard Mason
Assistant General Counsel
Attachment