NEW ORLEANS — An appellate court ruling involving American Airlines' $5.7 billion 401(k) plan could jeopardize the ability of all defined contribution plan participants to sue for losses because of mismanagement.
At issue is whether participants in employee-directed DC plans may bring class-action lawsuits against fiduciaries under federal pension law if only some of the participants suffered losses.
In other words, unless every participant suffers a loss, participants would have no recourse against their employer and service provider for losses due to breaches of fiduciary duties. Such breaches could be caused by mismanagement of plan assets, declines in the employer's stock price, excessive mutual fund fees, blackout periods and the collapse of their employer.
There have already been two other rulings in the case — Milofsky vs. American Airlines — involving the pilots of Business Express Inc., a firm acquired by American's parent in March 1999. The pilots contend that some participants suffered losses during the blackout period when their 401(k) plan was merged with American's.
First, a U.S. District Court judge in Texas dismissed the pilots' claims because not everybody in the Business Express Inc. Saving and Profit Sharing Plan had lost money. The court said individuals, not the plan, would stand to gain through the lawsuit.
The pilots appealed and, in a divided vote, a three-judge panel of the 5th U.S. Circuit Court of Appeals upheld the district court's decision, saying participants couldn't sue through an ERISA class-action suit.
Now, there will be a rehearing by the full appeals court, tentatively scheduled for Sept. 12.