This case involves whether a participant in a 401(k) plan who cashes out of the plan has standing to sue on behalf of the plan under ERISA for damages that resulted when the company's stock dropped in value. By statute, a plaintiff must be a "participant" in the plan in order to bring suit on behalf of the plan. The plaintiff in this case was a former employee who claimed that certain officers, directors and employees of Conexant breached their fiduciary duties under ERISA by imprudently managing the company's 401(k) plan. The company's stock was an investment option in the plan, but the value dropped substantially.
This case is a "stock drop" suit similar to Dickerson v. Feldman, in which the NAM filed a similar brief. There are more than 100 suits that have been filed in federal courts against numerous major corporations in every major sector.
The NAM's amicus brief argued that only participants can sue on behalf of an employee benefit plan, and there are tremendous paperwork/recordkeeping requirements that would kick in if the court rules than individuals who cash out of their plans are still “participants” under the law. There are more than 388,000 defined contribution 401(k) plans, covering 43 million active participants. Plan administrators are required to file annual reports and other documents and send summaries to participants, and failure to do so is subject to penalties of from $100 to $1,000 per day. A Department of Labor report estimates the cost of providing this information to range from $34 to $42 per participant, and including former employees in this process would raise the costs for participants. In addition, there are plenty of people who continue to be participants who have standing to bring any appropriate law suit on behalf of the plan.
On July 31, 2007, the Third Circuit ruled that the former employee is a "participant" with standing to bring the suit under ERISA. Participants include former employees as long as they have a colorable claim for vested benefits.