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CCH® PENSION AND BENEFITS — 07/31/09

Former 401(k) Plan Participant Who Had Cashed Out His Account Could Pursue Fiduciary Breach Suit

from Spencer’s Benefits Reports: A former participant in a 401(k) plan could pursue a claim for breach of fiduciary duty under ERISA even though he had withdrawn all of the assets in his plan account. This was the decision of the Ninth Circuit U.S. Court of Appeals in Harris, et al. v. Amgen, Inc., et al. (No. 08-55389).

Amgen is a publicly traded biotechnology company that operates Amgen Manufacturing, Ltd., as a wholly owned subsidiary. Employees of Amgen are eligible to participate in the Amgen Retirement and Savings Plan, and Amgen Manufacturing employees are eligible to participate in the Retirement and Savings Plan for Amgen Manufacturing, Ltd. Amgen is the named fiduciary of the Amgen Savings plan, while Amgen Manufacturing is the named fiduciary of the Manufacturing plan. The fiduciary responsibilities for both plans were delegated to the Amgen fiduciary committee.

Steve Harris worked at Amgen until January 2007, and participated in the Amgen plan. Mr. Harris’ Amgen plan holdings sometimes included Amgen stock. In July 2007, Mr. Harris withdrew his assets from his Amgen plan account. Dennis F. Ramos worked at Amgen Manufacturing until March 2007 and participated in the Manufacturing plan. Mr. Ramos’ Manufacturing plan holdings also sometimes included Amgen stock, and he still has assets in the Manufacturing plan.

In August 2007, Mr. Harris and Mr. Ramos filed a class action suit against Amgen and several company directors and officers in the U.S. District Court for the Central District of California. In the suit, the plaintiffs alleged that during a 22-month period, the defendants breached their fiduciary duties by allowing the plans to purchase and hold Amgen stock while knowing that the stock price was artificially inflated because of improper off-label drug marketing and sales. The plaintiffs asserted that the Amgen stock price declined significantly once the off-label activity became public, and that the defendants were liable for the resulting losses suffered by the plaintiffs. In their complaint, the plaintiffs sought relief under ERISA Sec. 502(a)(2), which authorizes a suit by a plan participant for “appropriate relief” against a plan fiduciary for a breach of fiduciary duty.

The district court dismissed all of Mr. Harris’ claims, concluding that Mr. Harris did not have statutory standing as a “participant” in the Amgen plan because he had already cashed out his plan account. The district court further determined that Mr. Ramos had standing because he still had assets in the Manufacturing plan, but it dismissed all of Mr. Ramos’ claims on the grounds that neither Amgen nor the named defendants were fiduciaries of the Manufacturing plan. The plaintiffs appealed, and the Ninth Circuit reinstated all of their claims.

Ninth Circuit’s Analysis

In rendering its decision, the Ninth Circuit initially explained, “To establish standing to sue under ERISA, plaintiffs must show that they are plan ‘participants.’ An ERISA plan participant is ‘any employee or former employee of an employer who is or may become eligible to receive a benefit of any type from an employee benefit plan.’ This definition encompasses former employees who have a colorable claim to vested benefits. In contrast, former employees do not have standing if a successful suit would result in a damage award that was not for benefits due under the plan.”

Turning to the facts of the case, the Ninth Circuit stated, “When employees withdraw their funds from a benefit plan, but claim that they would have had more to withdraw absent breach of fiduciary duty by those managing the plan, it is not difficult to see a common-sense loss of benefits in their plan caused by the alleged fiduciary breach. We hold that employees who cash out of a defined contribution ERISA plan are still ‘participants’ in that plan, regardless of whether they withdrew their assets voluntarily.”

On appeal, the defendants conceded that Mr. Harris was a participant in the Amgen plan, but argued that Mr. Harris should have statutory standing only under ERISA Sec. 502(a)(1)(B), which authorizes a participant to bring an action to recover benefits due under a plan, and not ERISA Sec. 502(a)(2). In dismissing that argument, the Ninth Circuit stated, “We reject defendants’ attempt to create a distinction on standing between two similar ERISA causes of action. At least two circuits that have analyzed whether a distinction on standing exists between sections 502(a)(1)(B) and 502(a)(2) have concluded that this dichotomy is untenable. Bringing the suit under section 502(a)(2) does not change the underlying nature of the plaintiffs’ claim as one for benefits. We agree with the reasoning of the First and Third Circuits, and we join them in holding that an ERISA plan participant who no longer has assets in the plan has statutory standing to assert fiduciary duty claims under section 502(a)(2), even when relief is also available under section 502(a)(1)(B).”

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