In Re Mutual Funds Investment Litigation

PUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

In Re: MUTUAL FUNDS INVESTMENT 
LITIGATION

CRAIG WANGBERGER, on behalf of
himself and all others similarly
situated,
Plaintiff-Appellant,
v.
JANUS CAPITAL GROUP,
INCORPORATED; PLAN ADVISORY
COMMITTEE,

Defendants-Appellees,
No. 06-2003
and
CHARLES SCHWAB TRUST COMPANY;
ADVISORY COMMITTEE; STEVEN L.
SCHEID; G. ANDREW COX; PAUL F.
BALSER,
Defendants.

SECRETARY OF LABOR,
Amicus Supporting Appellant,
CHAMBER OF COMMERCE OF THE
UNITED STATES OF AMERICA,
Amicus Supporting Appellees.

2 IN RE: MUTUAL FUNDS INVESTMENT LITIGATION

In Re: MUTUAL FUNDS INVESTMENT 
LITIGATION

MIRIAM CALDERON, individually and
on behalf of all others similarly
situated,
Plaintiff-Appellant,
v.
AMVESCAP NATIONAL TRUST
COMPANY; AVZ INCORPORATED,
Defendants-Appellees,
and
AMVESCAP PLC; AMVESCAP  No. 06-2176
RETIREMENT, INCORPORATED; ROBERT
F. MCCULLOUGH; GORDON NEBEKER;
JEFFREY G. CALLAHAN; INVESCO
FUNDS GROUP, INCORPORATED;
RAYMOND R. CUNNINGHAM; DOES
1-100,
Defendants.

SECRETARY OF LABOR,
Amicus Supporting Appellant,
CHAMBER OF COMMERCE OF THE
UNITED STATES OF AMERICA,
Amicus Supporting Appellees.

 IN RE: MUTUAL FUNDS INVESTMENT LITIGATION 3

In Re: MUTUAL FUNDS INVESTMENT 
LITIGATION

JESSICA CORBETT, on behalf of
herself and all others similarly
situated,
Plaintiff-Appellant,
and
AURORA HENAO; BARBARA WALSH,
Plaintiffs,
v.
MARSH & MCLENNAN COMPANIES,
INCORPORATED; PUTNAM INVESTMENTS,
LLC; J. W. GREENBERG; FRANCIS N.
BONSIGNORE; WILLIAM L. ROSOFF;
SANDRA S. WIJNBERG,  No. 06-2177
Defendants-Appellees,
and
PUTNAM INVESTMENTS TRUST;
NORMAN BERHAM; LEWIS W.
BERNARD; RICHARD H. BLUM; FRANK
J. BORELLI; ROBERT F. ERBURU; RAY
J. GROVES; GEORGE PUTNAM; JOHN D.
ONG; THE RIGHT HONORABLE LORD
LANG OF MONKTON; ADELE SMITH
SIMMONS; A.J.C. SMITH; PETER
COSTER; LAWRENCE J. LASSER; DAVID
A. OLSEN; JOHN T. SINNOTT; FRANK
J. TASCO; STEPHEN R. HARDIS; SAXON
RILEY; GWENDOLYN S. KING; W.R.P.
WHITE-COOPER; MATHIS
CABIALLAVETTA; CHARLES A. DAVIS;

4 IN RE: MUTUAL FUNDS INVESTMENT LITIGATION

MORTON O. SCHAPIRO; IRENE M. 
ESTEVES; PATRICIA A. AGNELLO;
DONALD E. MULLEN; PUTNAM
RETIREMENT SAVINGS PLAN
COMMITTEE; MARSH & MCLENNAN
COMPANIES, INCORPORATED, Stock
Investment Plan Committee; MARSH
& MCLENNAN, INCORPORATED,
Benefits Administration Committee;
SANDRA WRIGHT,

Defendants.

SECRETARY OF LABOR,
Amicus Supporting Appellant,
CHAMBER OF COMMERCE,
Amicus Supporting Appellees.

Appeals from the United States District Court
for the District of Maryland, at Baltimore.
J. Frederick Motz, District Judge.
(1:05-cv-02711-JFM; 1:04-cv-00824-JFM; 1:04-cv-00883-JFM)

Argued: December 5, 2007

Decided: June 16, 2008

Before NIEMEYER and SHEDD, Circuit Judges, and
Leonie M. BRINKEMA, United States District Judge for the
Eastern District of Virginia, sitting by designation.

Reversed and remanded by published opinion. Judge Niemeyer wrote
the opinion, in which Judge Shedd and Judge Brinkema joined.
 IN RE: MUTUAL FUNDS INVESTMENT LITIGATION 5
COUNSEL

ARGUED: Samuel K. Rosen, HARWOOD & FEFFER, L.L.P., New
York, New York, for Appellants. Kristen Lindberg, UNITED
STATES DEPARTMENT OF LABOR, Washington, D.C., for
Amicus Supporting Appellants. Mark Andrew Perry, GIBSON,
DUNN & CRUTCHER, L.L.P., Washington, D.C., for Appellees. ON
BRIEF: Paul Blankenstein, Dustin K. Palmer, GIBSON, DUNN &
CRUTCHER, L.L.P., Washington, D.C., for Appellees Janus Capital
Group, Incorporated, and Janus Plan Advisory Committee; Robert N.
Eccles, Gary S. Tell, Shannon M. Barrett, O’MELVENY & MYERS,
L.L.P., Washington, D.C., for Appellees Marsh & McLennan Compa-
nies, Incorporated, Putnam Investments, L.L.C., J. W. Greenberg,
Francis N. Bonsignore, William L. Rosoff, and Sandra S. Wijnberg;
Maeve L. O’Connor, Maura K. Monaghan, DEBEVOISE & PLIMP-
TON, L.L.P., New York, New York, for Appellees Amvescap
National Trust Company and AVZ Incorporated. Howard M.
Radzely, Solicitor of Labor, Timothy D. Hauser, Associate Solicitor
for Plan Benefits Security, Karen L. Handorf, Counsel for Appellate
and Special Litigation, UNITED STATES DEPARTMENT OF
LABOR, Washington, D.C., for Amicus Supporting Appellants.
Robin S. Conrad, Shane Brennan, NATIONAL CHAMBER LITIGA-
TION CENTER, Washington, D.C.; Carol Connor Flowe, Nancy S.
Heermans, Caroline Turner English, ARENT FOX, L.L.P., Washing-
ton, D.C., for Amicus Supporting Appellees.

OPINION

NIEMEYER, Circuit Judge:

The plaintiffs, each of whom purports to represent a class of others
similarly situated, are former employees who maintained accounts in
§ 401(k) defined contribution retirement plans sponsored by their
employers and who, upon leaving employment, voluntarily sought
and obtained full distribution of the vested benefits in their respective
accounts. They commenced these actions under the Employee Retire-
ment Income Security Act of 1974 ("ERISA") against the fiduciaries
of their respective retirement plans, for breach of their fiduciary
6 IN RE: MUTUAL FUNDS INVESTMENT LITIGATION
duties to the plans based on the fiduciaries’ knowing investment in
mutual funds that allowed investors to practice market timing, an abu-
sive form of arbitrage activity that favored the market timers and
harmed long-term investors in the funds, such as the plaintiffs. The
plaintiffs sued the fiduciaries under §§ 502(a)(2) and 409(a) of
ERISA, which allow for a derivative action to be brought by a retire-
ment plan "participant" on behalf of the plan to obtain recovery for
losses sustained by the plan because of breaches of fiduciary duties.

The defendants filed motions to dismiss the plaintiffs’ claims, chal-
lenging their standing to assert the claims under both ERISA and
Article III of the Constitution. The district court granted their
motions, finding that the plaintiffs did not fall within the class of indi-
viduals authorized to sue under ERISA § 502(a)(2) because, having
cashed-out of the plans, they were no longer seeking "benefits," as
required to have statutory authority to sue, but rather money damages.

Because we conclude that cashed-out former employees remain
"participants" in defined contribution retirement plans for purposes of
§ 502(a)(2) of ERISA when they seek to recover amounts that they
claim should have been in their accounts had it not been for alleged
fiduciary impropriety, we find that they have "statutory standing."
And because the plans at issue are defined contribution plans, rather
than defined benefit plans, we reject the defendants’ argument that the
plaintiffs’ injuries are not redressable and therefore that they lack
Article III standing. Accordingly, we reverse the judgments of the dis-
trict court and remand these cases for further proceedings.

I

When Craig Wangberg,1 Miriam Calderon, Jessica Corbett, and
Anita Walker retired from their respective employments, they volun-
tarily "cashed out" their vested interests in defined contribution retire-
ment plans that their employers had sponsored. "Defined
contribution" plans are plans that provide for individual accounts and
that define the participants’ benefits as the contents of their accounts,
including contributions (from both participants and employers), as
1
Craig Wangberg’s case has, from the beginning, incorrectly carried
his name into the caption as "Wangberger."
 IN RE: MUTUAL FUNDS INVESTMENT LITIGATION 7
well as the investment gains minus investment losses and any alloca-
ble plan expenses. See 29 U.S.C. § 1002(34). Before these employees
had been paid the value of their accounts in the defined contribution
plans, the plans had invested in various mutual funds that allowed
investors to practice a form of arbitrage known as market timing, in
which investors move in and out of the funds to take advantage of the
temporary differentials between the mutual funds’ daily-calculated
"net asset value" ("NAV") and the market price of the component
stocks during the course of a day. Not only does market timing favor
the market timers at the expense of long-term investors in mutual
funds, it also increases the funds’ costs and impairs investment per-
formance. See generally SEC v. Pimco Advisors Fund Mgmt. LLC,
341 F. Supp. 2d 454, 458 (S.D.N.Y. 2004); Prusky v. Reliastar Life
Ins. Co., 445 F.3d 695, 697-98 & n.4 (3d Cir. 2006); see also Disclo-
sure Regarding Market Timing and Selective Disclosure of Portfolio
Holdings, 68 Fed. Reg. 70,402, 70,402-04 (proposed Dec. 17, 2003)
(describing mutual fund market timing in detail).

Market timing can harm mutual fund investors by causing mutual
funds to manage their portfolios in a manner that is disadvantageous
to long-term shareholders. Disclosure Regarding Market Timing, 68
Fed. Reg. at 70,404. For example, investment advisors might maintain
a larger percentage of fund assets in cash or liquidate certain portfolio
securities prematurely to meet higher levels of redemptions due to
market timing activity occurring within the fund. Id. "It would make
little sense for a fund manager to invest in assets with significant
long-term potential but high short-term volatility if a market timer’s
redemptions could force the quick sale of fund assets." Pimco, 341 F.
Supp. 2d at 458. Moreover, market timing can "increas[e] trading and
brokerage costs, as well as tax liabilities, incurred by a fund and
spread across all fund investors." Id.

Market timing can be especially problematic when it occurs in
mutual funds that invest in overseas securities because the time zone
differences allow market timers to purchase shares of such funds
"based on events occurring after foreign market closing prices are
established, but before the fund’s NAV calculation." Disclosure
Regarding Market Timing, 68 Fed. Reg. at 70,403. Prior to the daily
NAV calculation, which in the United States generally occurs at or
near the closing time of the major U.S. securities markets, the fund
8 IN RE: MUTUAL FUNDS INVESTMENT LITIGATION
price would not take into account any changes that have affected the
value of the foreign security. Therefore, if the foreign security had
increased in value, the NAV for the mutual fund would be artificially
low. Id. After purchasing the shares at the low price, "the market
timer would redeem the fund’s shares the next day when the fund’s
share price would reflect the increased prices in foreign markets, for
a quick profit at the expense of long-term fund shareholders." Id.
Market timing opportunities also exist in mutual funds that do not
invest in foreign markets, such as small-cap stocks and high-yield
bonds, which are relatively illiquid assets and are not frequently
traded. Id.; see also Richard L. Levine, Yvonne Cristovici & Richard
A. Jacobsen, Mutual Fund Market Timing, Fed. Lawyer, Jan. 2005,
at 28, 30.

The harm that market timing can cause to the interests of investors,
especially long-term investors, has led many mutual funds to adopt
policies and to impose fees intended to limit market timing within
their funds. It has also led to increased regulatory action by the Secur-
ities and Exchange Commission. See, e.g., Disclosure Regarding Mar-
ket Timing, 68 Fed. Reg. at 70,402. In addition, in 2003, both state
and federal regulators began investigating mutual funds that allowed
the practice. These investigations led to SEC-sponsored settlements
totaling more than $3.5 billion paid by investment advisors to mutual
funds in approximately 20 mutual fund complexes. In the wake of this
regulatory activity, hundreds of civil actions alleging abusive mutual
fund market timing were filed by mutual fund investors and partici-
pants in employee retirement plans.

The civil actions concerning mutual fund market timing, including
the four cases appealed to us, were transferred by the Judicial Panel
on Multidistrict Litigation to three judges in the District of Maryland
for coordinated pretrial proceedings. See In re Janus Mut. Funds Inv.
Litig., 310 F. Supp. 2d 1359, 1361-62 (J.P.M.L. 2004).

The plaintiffs in the four cases initially before us filed class action
claims against their employers and other fiduciaries of their defined
contribution retirement plans, which had invested in mutual funds
allowing market-timing activity. At the time they commenced these
actions, none of the plaintiffs remained employed by the companies
sponsoring their plans, nor did any continue to have open accounts
 IN RE: MUTUAL FUNDS INVESTMENT LITIGATION 9
with these plans. They had all "cashed out" their vested benefits. In
their complaints, brought under ERISA § 502(a)(2), the plaintiffs
alleged that the defendant fiduciaries knowingly invested in mutual
funds that allowed improper and abusive market timing, materially
diluting the value of the funds and therefore the value of their individ-
ual retirement accounts, in violation of the fiduciary duties imposed
by ERISA § 409(a). They alleged that due to the breach of fiduciary
duties, their individual retirement accounts in the defined contribution
plans suffered a diminution in value and that therefore they did not
receive the full benefits to which they were entitled under the relevant
plans when they cashed out. The defendants filed motions to dismiss,
arguing that because each of the named plaintiffs had terminated his
or her employment and had cashed out of his or her retirement plan,
taking a full distribution of the account’s contents before filing suit,
the plaintiffs lacked standing to sue.

The district court initially denied the defendants’ motions to dis-
miss in three of the cases, finding that the cashed-out former-
employee plaintiffs in those cases had standing to bring their ERISA
claims. Corbett v. Marsh & McLennan Cos., Inc., No. MDL-15863,
Civ. JFM-04-0883, 2006 WL 734560 (D. Md. Feb. 27, 2006); Calde-
ron v. Amvescap PLC, No. MDL-15864, Civ. JFM-04-0824, 2006
WL 735006 (D. Md. Feb. 27, 2006); Walker v. Mass. Financial Servs.
Co., No. MDL-15863, Civ. JFM-04-1758, 2006 WL 734796 (D. Md.
Feb. 27, 2006). When it came time to decide the motion to dismiss
in Wangberg’s case, however, the district court reached a contrary
conclusion and granted the motion, concluding that cashed-out former
employees are not afforded the right to sue under ERISA § 502(a)(2).
Wangberger v. Janus Capital Group In re Mut. Funds Inv. Litig., No.
MDL-15863, Civ. JFM-05-2711, 2006 WL 2381056 (D. Md. Aug.
15, 2006). Explaining the discrepancy in outcomes, the court stated
that after deciding the first three cases, it was persuaded by a number
of district courts that had in the interim found a lack of standing in
similar cases.2 After reversing its position in deciding Wangberger,
2
See Graden v. Conexant Sys., Inc., No. Civ. 05-0695, 2006 WL
1098233 (D.N.J. Mar. 31, 2006); In re RCN Litig., No. 04-5068 (SRC),
2006 WL 753149 (D.N.J. Mar. 21, 2006); Holtzscher v. Dynegy, Inc.,
No. Civ. A. H-05-3293, 2006 WL 626402 (S.D. Tex. Mar. 13, 2006);
10 IN RE: MUTUAL FUNDS INVESTMENT LITIGATION
the district court then reconsidered its earlier decisions in Corbett,
Calderon, and Walker and granted the motions to dismiss for lack of
standing in each of those cases also. In dismissing the four cases, the
district court concluded that the plaintiffs’ claims were "more in the
nature of claims for damages than for payment of a vested benefit."
In re Mutual Funds Invest. Litig., 2006 WL 2381056, at *1. It
explained:

My ruling . . . should not be read as implying that former
participants do not have standing to sue Plan fiduciaries or
the Plan itself in the event that a Plan obtains a recovery in
an investor class action . . . and then chooses not to distrib-
ute a pro rata portion of the recovery to former participants
whose retirement accounts held shares in the relevant
mutual funds during the class period. If that were to occur,
the focus of litigation instituted by a former Plan participant
would be upon how to allocate a sum certain among various
beneficiaries with conflicting claims, not upon determining
the fiduciaries’ asserted liability for making imprudent
investments — and, in the event of a finding of liability —
reducing to a set amount alleged investment losses of inher-
ently inchoate value. These questions are quite different
from one another, and former participants may have the
right to assure that the Plan or its fiduciaries distribute to
them, rather than giving to others or retaining for the Plan
itself, benefits that in fairness and good conscience are due
to them.

Id. at *n.2.

The plaintiffs in each of the four cases appealed, and we consoli-
dated their appeals to decide the single issue of whether the plaintiffs
have statutory and constitutional standing. Subsequently, the parties

LaLonde v. Textron Inc., 418 F. Supp. 2d 16 (D.R.I. 2006); In re Admin.
Comm. ERISA Litig., No. C03-3302 PJH, 2005 WL 3454126 (N.D. Cal.
Dec. 16, 2005). The decision in Graden was later reversed by the Third
Circuit, 496 F.3d 291, 303 (3d Cir. 2007), cert. denied, 128 S. Ct. 1473
(2008).
 IN RE: MUTUAL FUNDS INVESTMENT LITIGATION 11
to the Walker case filed a stipulation of voluntary dismissal, leaving
us with three cases on appeal.

II

Arguing from the language of ERISA, the plaintiffs contend that
the district court erred because "participants’ benefits in a ‘defined
contribution’ plan are vested in all contributions and earnings and any
other plan assets allocated to their individual accounts." Because "the
Plans’ assets (including recovery from loss) are considered the bene-
fits of the Plans’ participants," when each plaintiff took the distribu-
tion of his or her account, the account "had lost value due to
Defendants’ actions, [and therefore] each has a colorable claim to the
appropriate increase in his or her vested benefit," giving each standing
to assert that claim.

The defendants contend that because the plaintiffs have already
been paid their full contributions, they do not have a "colorable claim
to vested benefits," citing Firestone Tire & Rubber Co. v. Bruch, 489
U.S. 101, 117-18 (1989). They argue that benefits are defined in the
present as "the amount contributed to the participant’s account" as
well as "any income, expenses, gains and losses . . . which may be
allocated to such participant’s account." 29 U.S.C. § 1002(34).
Amplifying on this, they state:

Here, plaintiffs have already received the entirety of the net
contributions to their accounts, and thus have no claim
(much less a "colorable" one) that they are owed some or all
of those contributions. Upon termination of their employ-
ment, plaintiffs received lump sum distributions of their
respective contributions net of expenses, etc. — that is, all
benefits then vested. They make no claim that these amounts
were miscalculated or misstated. For this reason, plaintiffs
err in arguing that "[i]t is the claim to that amount that must
be colorable[,] not the amount itself." Plaintiffs have no col-
orable claim to any amount of vested benefits.

We begin with the relevant texts, noting that ERISA § 502(a)(2)
provides that "a participant" may bring a civil action against fidu-
12 IN RE: MUTUAL FUNDS INVESTMENT LITIGATION
ciaries for breaches of their duties as articulated in ERISA § 409(a).
See 29 U.S.C. § 1132(a)(2). Section 409(a) provides:

Any person who is a fiduciary with respect to a plan who
breaches any of the responsibilities, obligations, or duties
imposed upon fiduciaries by this subchapter shall be person-
ally liable to make good to such plan any losses to the plan
resulting from each such breach, and to restore to such plan
any profits of such fiduciary which have been made through
use of assets of the plan by the fiduciary, and shall be sub-
ject to such other equitable or remedial relief as the court
may deem appropriate, including removal of such fiduciary.

29 U.S.C. § 1109(a) (emphasis added). The "participant" who may so
sue is defined to be:

any employee or former employee of an employer, or any
member or former member of an employee organization,
who is or may become eligible to receive a benefit of any
type from an employee benefit plan which covers employees
of such employer or members of such organization, or
whose beneficiaries may be eligible to receive any such ben-
efit.

29 U.S.C. § 1002(7) (emphasis added). As noted, the Supreme Court
in Firestone defined a participant under these sections of ERISA to
include a former employee with "a colorable claim to vested bene-
fits." Firestone, 489 U.S. at 118.

After the district court entered its judgments in these cases, deny-
ing the plaintiffs standing, the Supreme Court decided LaRue v.
DeWolff, Boberg & Associates, Inc., 128 S. Ct. 1020 (2008), in which
the Court took Firestone a step further and held that ERISA autho-
rized a cashed-out former employee to sue his former employer and
the defined contribution plan for breach of fiduciary obligation that
caused a loss in his individual plan account, to claim "any profit
which would have accrued to the [plan] if there had been no breach
of trust." Id. at 1024 n.4 (internal quotation marks omitted). While
plaintiff LaRue had argued in the district court that he only wanted
"the plan to properly reflect that which would be his interest in the
 IN RE: MUTUAL FUNDS INVESTMENT LITIGATION 13
plan, but for the breach of fiduciary duty," the district court rejected
that argument and concluded that since the defendants "did not pos-
sess any disputed funds that rightly belonged to [him], [the plaintiff]
was seeking damages rather than equitable relief." Id. at 1023.
Reversing the district court and the court of appeals, the Supreme
Court concluded that the plaintiff was authorized to bring his claim
for loss of plan assets in his individual account under ERISA
§ 502(a)(2), notwithstanding its earlier decision in Massachusetts
Mutual Life Insurance Co. v. Russell, 473 U.S. 134 (1985). In Russell,
the Court had held that § 502(a)(2) provided remedies only for entire
plans, not for individuals. 473 U.S. at 140-41. The LaRue Court, how-
ever, distinguished Russell on the basis that the Russell Court
addressed a defined benefit plan rather than a defined contribution plan.3
As the LaRue Court explained:

Misconduct by the administrators of a defined benefit plan
will not affect an individual’s entitlement to a defined bene-
fit unless it creates or enhances the risk of default by the
entire plan.

128 S. Ct. at 1025 (emphasis added). But in a defined contribution
plan, the Court pointed out, the benefit is the participant’s interest in
an individual account, and the "misconduct need not threaten the sol-
vency of the entire plan to reduce benefits below the amount that par-
ticipants would otherwise receive." Id. at 1025. The Court noted that
the diminishment of plan assets payable through individual accounts
was "the kind of harm[ ] that concerned the draftsmen of § 409." Id.
Thus, the LaRue Court held:

[A]lthough § 502(a)(2) does not provide a remedy for indi-
vidual injuries distinct from plan injuries, that provision
does authorize recovery for fiduciary breaches that impair
the value of plan assets in a participant’s individual
account.
3
Distinguishing a defined contribution plan from a defined benefit
plan, the Court explained that a defined contribution plan "promises the
participant the value of an individual account at retirement," whereas a
defined benefit plan "promises the participant a fixed level of retirement
income." LaRue, 128 S. Ct. at 1022 n.1.
14 IN RE: MUTUAL FUNDS INVESTMENT LITIGATION
Id. at 1026 (emphasis added).

We believe that the holding in LaRue controls the outcome here.

Thus, while Firestone held that former employees who maintained
active retirement accounts with funds invested in them would qualify
as "participants" under ERISA, LaRue took the short additional step
to conclude that even a former employee who cashed out his vested
benefits in a plan would remain a "participant," so long as (1) the
fiduciaries are "chargeable with . . . any profit which would have
accrued to the [plan] if there had been no breach of trust," LaRue, 128
U.S. at 1024 n.4 (omission in original) (internal quotation marks
omitted), and (2) the participant has a claim that the profits would
have increased the benefit to which he would have been entitled had
the breach not occurred, id. at 1025. See also id. at 1026 n.6;
Harzewski v. Guidant Corp., 489 F.3d 799, 804-05 (7th Cir. 2007);
Graden v. Conexant Sys., Inc., 496 F.3d 291, 296-97 (3d Cir. 2007),
cert. denied, 128 S. Ct. 1473 (2008); Bridges v. Am. Elec. Power Co.,
498 F.3d 442, 445 (6th Cir. 2007). As the court in Graden stated, "[i]f
the plaintiff colorably claims that under the plan and ERISA he was
entitled to more than he received on the day he cashed out, then he
presses a claim for vested benefits and must be accorded participant
standing." 496 F.3d at 300.

As in LaRue and the courts of appeals’ opinions cited, the plain-
tiffs’ claims here are based on allegations that breaches of fiduciary
duties diminished the values of their individual accounts and that the
plans entitled them to more than they received on the days they
cashed out of them. Had the fiduciaries acted in accordance with their
duties, the plaintiffs claim, their accounts would have held more
money on the days they cashed out. Thus, because plan documents
and ERISA entitled them to more money on the days they cashed out,
their claims are for additional benefits, and not for damages as the dis-
trict court held.

The defendants’ argument that the plaintiffs took full distributions
of the contents of their accounts at the time they cashed out is persua-
sively answered by the discussion in Harzewski:

Suppose [the defendant] had stolen half the money in a plan
participant’s retirement account and a suit by the participant
 IN RE: MUTUAL FUNDS INVESTMENT LITIGATION 15
resulted in a judgment for that amount; the suit would have
established the retiree’s eligibility for the larger benefit.
There is no difference if instead of stealing the money from
the account, [the defendant] by imprudent management
caused the account to be half as valuable as it would have
been under prudent management.

489 F.3d at 804. Taking the Seventh Circuit’s analogy in Harzewski
a step further, imagine that instead of stealing half the money in a
plan participant’s retirement account, a defendant fiduciary steals all
of the money in the account. The retiree would not cease to be a "par-
ticipant" merely because the account balance equaled zero as a result
of the defendant’s improper conduct. Likewise, when the account bal-
ance is reduced because of a fiduciary’s mismanagement, causing the
balance to reach zero before a retiree receives his full benefits due,
the account holder remains a "participant." Thus, a retiree’s eligibility
to obtain plan benefits does not end when his account balance
becomes zero, as the defendants suggest. "The benefit in a defined-
contribution pension plan is, to repeat, just whatever is in the retire-
ment account when the employee retires or whatever would have been
there had the plan honored the employee’s entitlement, which
includes an entitlement to prudent management." Id. at 804-05.

In short, we conclude that participants in defined contribution plans
controlled by ERISA have colorable claims against the fiduciaries of
their plans when they allege that their individual accounts in the plans
were diminished by fraud or fiduciary breaches and that the amounts
by which their accounts were diminished constitute part of the partici-
pants’ benefits under the plans. The plaintiffs’ claims in this case are
for such additional benefits, not damages, and they therefore have
standing to sue under ERISA § 502(a)(2).

III

Because we conclude that the plaintiffs have "statutory standing"
to bring their claims, we must also now decide whether they have
constitutional standing, as required by Article III of the U.S. Constitu-
tion, for it is conceivable that a person is a member of the class given
authority by a statute to bring suit but nonetheless has not, for exam-
ple, sustained injury that would be redressable by a favorable decision
16 IN RE: MUTUAL FUNDS INVESTMENT LITIGATION
of the court. See, e.g., Cent. States Southeast & Southwest Areas
Health & Welfare Fund v. Merck-Medco Managed Care, L.L.C., 433
F.3d 181, 199 (2d Cir. 2005).

Article III standing is a fundamental, jurisdictional requirement
that defines and limits a court’s power to resolve cases or controver-
sies. See Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 102
(1998); Emery v. Roanoke City Sch. Bd., 432 F.3d 294, 298 (4th Cir.
2005). And "the irreducible constitutional minimum of standing" con-
sists of injury-in-fact, causation, and redressability. Lujan v. Defend-
ers of Wildlife, 504 U.S. 555, 560-61 (1992); White Tail Park, Inc. v.
Stroube, 413 F.3d 451, 458 (4th Cir. 2005).

In this case, the first two elements are not at issue: If the plaintiffs’
allegations are true, they suffered injury in that their retirement
accounts were worth less than they would have been absent the
breach of duty, and this injury was caused, as the plaintiffs have
alleged, by the fiduciaries’ misconduct. The defendants contend, how-
ever, that the plaintiffs have not satisfied the third element of constitu-
tional standing — that their injury be redressable by a favorable
decision in this litigation.

Defendants contend that even if the plaintiffs can prove the merits
of their case, it is wholly speculative whether any recovery by the
plan would pass through to the plaintiffs’ individual accounts. Yet, for
an injury to meet the redressability standard, "it must be ‘likely,’ as
opposed to merely ‘speculative,’ that the injury will be ‘redressed by
a favorable decision.’" Lujan, 504 U.S. at 561 (emphasis added)
(quoting Simon v. Eastern Ky. Welfare Rights Org., 426 U.S. 26, 38,
43 (1976)). The defendants rest their argument that redress for the
plaintiffs’ injury is speculative on two points.

First, they assert that whether the plaintiffs recover any money in
these cases is "entirely dependent on the discretionary actions of third
parties (retirement plan fiduciaries)" and that therefore Article III
standing cannot be met, citing ASARCO, Inc. v. Kadish, 490 U.S. 605
(1989). In ASARCO, the plurality concluded that the redressability
requirement had not been met because even if the plaintiff association
prevailed, "[w]hether the association’s claims of economic injury
would be redressed by a favorable decision [depended] on the unfet-
 IN RE: MUTUAL FUNDS INVESTMENT LITIGATION 17
tered choices made by independent actors not before the courts and
whose exercise of broad and legitimate discretion the courts cannot
presume either to control or to predict." Id. at 615 (emphasis added).
Of course, the defendants point out, if the fiduciaries are not before
the courts and they have discretion that cannot be controlled or pre-
dicted, then any relief for the plaintiffs would be entirely speculative.
But that is not the case here.

In these cases before us, the plaintiffs have made the plan fidu-
ciaries parties to the actions, suing all of the fiduciaries that controlled
the investment decisions of the plans’ funds. As applicable to their
respective plans, the plaintiffs sued the plan sponsors, the plan admin-
istrators, the plan trustees, and members of advisory investment com-
mittees, and they alleged that these fiduciaries knew that the mutual
funds in which they were investing allowed market timing activity
and that this activity favored the market timers at the expense of long-
term investors, such as the plaintiffs. They asserted that because of
imprudent investment decisions by the fiduciaries, their individual
accounts in the respective plans were diminished.

Unlike the circumstances in ASARCO and the other similar cases
cited by the defendants, the fiduciaries are in fact before the court in
these cases and can respond to court orders to redress wrongs. Section
409(a) of ERISA provides that a court may direct fiduciaries to repay
the plans and that, in addition, fiduciaries "shall be subject to such
other equitable or remedial relief as the court may deem appropriate."
29 U.S.C. § 1109(a).

The defendants’ second point in support of their redressability
argument is that "[p]laintiffs have failed to adduce any facts showing
that the plan fiduciaries are likely to distribute any award in this action
to former employees, nor have they demonstrated that the district
court would have the authority to order the plan fiduciaries to do so
in this case." They point out that recovery by the plans for fiduciary
misconduct would become plan assets over which the fiduciaries
would have full discretion, and that their discretion must be exercised
"solely in the interest of the participants and beneficiaries" and "for
the exclusive purpose of: (i) providing benefits to participants and
their beneficiaries; and (ii) defraying reasonable expenses of adminis-
tering the plan." 29 U.S.C. § 1104(a)(1)(A). They conclude that the
18 IN RE: MUTUAL FUNDS INVESTMENT LITIGATION
duties of plan fiduciaries run to the plan as a whole, not to any indi-
vidual subset of plan participants, and therefore it can only be specu-
lation whether the plaintiffs’ individual accounts would benefit from
a favorable decision.

This traditional argument based on Russell, however, rests on
ERISA jurisprudence governing defined benefit plans, in which the
plan was paramount and once a participant was paid the defined bene-
fit, only the plan or those with current plan accounts had an interest
in recovering losses caused by fraud or other misconduct. As the
Supreme Court pointed out in LaRue, the early ERISA cases, includ-
ing Russell, were decided as they were because the plaintiffs in those
cases were participants in defined benefit plans so that when the plan
was injured, it did not necessarily affect a participant’s defined bene-
fit. Once the plaintiff received the defined benefit, he could receive
no more. As the LaRue Court explained, "A ‘defined benefit plan’
. . . generally promises the participant a fixed level of retirement
income, which is typically based on the employee’s years of service
and compensation," LaRue, 128 S. Ct. at 1022 n.1, and a plaintiff who
received a defined benefit could receive no more even if the plan had
been defrauded, id. at 1024-25. The LaRue Court pointed out, how-
ever, that since Russell, things have changed, and today "[d]efined
contribution plans dominate the retirement plan scene." Id. at 1025
(emphasis added). "[A] ‘defined contribution plan’ or ‘individual
account plan’ promises the participant the value of an individual
account at retirement, which is largely a function of the amounts con-
tributed to that account and the investment performance of those con-
tributions." LaRue, 128 S. Ct. at 1022 n.1 (emphasis added). As a
consequence, any fraud that diminishes the value of a participant’s
individual account is a harm for which the participant may sue under
§§ 502(a)(2) and 409(a) of ERISA. Id. at 1025. As the Supreme Court
articulated its holding:

[A]lthough § 502(a)(2) does not provide a remedy for indi-
vidual injuries distinct from plan injuries, that provision
does authorize recovery for fiduciary breaches that impair
the value of plan assets in a participant’s individual account.

Id. at 1026 (emphasis added). Thus, the defendants’ argument that
only the entire plan has an interest in the recovery is defeated by the
 IN RE: MUTUAL FUNDS INVESTMENT LITIGATION 19
LaRue Court’s observation that "our references to the ‘entire plan’ in
Russell, which accurately reflect the operation of § 409 in the defined
benefit context, are beside the point in the defined contribution con-
text." Id. at 1025 (emphasis added).

Of course, a participant suing to recover benefits on behalf of a
defined contribution plan for breach of a fiduciary duty is still not
entitled to have monetary relief paid directly to him. See LaRue, 128
S. Ct. at 1026. The recovery is obtained by the plan — even if it is
for injury only to a particular individual account — because the
aggregation of individual accounts defines the assets of the plan. See
29 U.S.C. § 1002(34). As the Supreme Court explained, "fiduciary
misconduct need not threaten the solvency of the entire plan to reduce
benefits below the amount that participants would otherwise receive."
Id. at 1025. It is sufficient that "a fiduciary breach diminishes plan
assets payable to all participants and beneficiaries, or only to persons
tied to particular individual accounts." Id.

The defendants’ argument that restoration of individual accounts
would be speculative following any recovery in these cases thus fails
to recognize that in a defined contribution plan, it is the plan assets
in the individual accounts that are restored — less, of course, fees and
expenses incurred. Accordingly, the redressability problem that arises
in defined benefit plans does not exist with respect to defined contri-
bution plans.4

Finally, we should note that while the LaRue Court only decided
statutory standing in its opinion, it did not ignore constitutional stand-
4
The defendants argue in addition that the Securities and Exchange
Commission settlements with respect to mutual fund market timing have
given plan fiduciaries the option not to allocate settlement proceeds to
cashed-out former employees, such as the plaintiffs, evidencing the fidu-
ciaries’ unbridled discretion. But the SEC’s settlements are matters of
negotiated contracts that are not binding here, especially in view of the
Supreme Court’s LaRue opinion, where the Court relied on the fact that
a defined contribution plan "promises the participant the value of an indi-
vidual account at retirement" and that any fraud that diminishes the value
of the participant’s individual account is a harm for which ERISA pro-
vides a remedy to the plan for the participant.
20 IN RE: MUTUAL FUNDS INVESTMENT LITIGATION
ing, nor could it have ruled on statutory standing had the requirements
of constitutional standing not been satisfied. In a motion to dismiss
filed in the Supreme Court, the LaRue defendants argued that the case
had become moot because the plaintiff failed to meet the redressa-
bility prong of constitutional standing. The defendants based their
argument on the fact that because the plaintiff had voluntarily taken
a full distribution of the amount in his individual account within the
defined contribution plan, he lost his status as a plan participant. See
Motion to Dismiss the Writ of Certiorari at 4, LaRue, 128 S. Ct. 1020
(2008) (No. 06-856), 2007 WL 3231419 at *4. In responding to this
argument, the Supreme Court stated that while the plaintiff’s "with-
drawal of funds from the Plan may have relevance to the proceedings
on remand, we denied [the defendants’] motion because the case is
not moot," LaRue, 128 S. Ct. at 1026 n.6 (emphasis added), noting
that "[a] plan ‘participant,’ as defined by § 3(7) of ERISA, 29 U.S.C.
§ 1002(7), may include a former employee with a colorable claim for
benefits," id. (citing Harzewski, 489 F.3d at 799, with approval).5
Thus, even though the Court did not decide constitutional standing in
its published opinion, it clearly manifested its belief that the plaintiff
there — a cashed-out former employee — had suffered an injury that
could be redressed by the court. This was necessary, since "such a
jurisdictional defect [as the lack of constitutional standing] deprives
not only the initial court but also the appellate court of its power over
the case or controversy." Freytag v. Comm’r, 501 U.S. 868, 896
(1991) (Scalia, J., concurring).

In sum, if we take the plaintiffs’ cases as they come to us and
therefore accept for now the allegations of the complaints as true —
that the defendants breached fiduciary obligations imposed by ERISA
§ 409(a) and those breaches had an adverse impact on the value of the
plan assets in the plaintiffs’ individual accounts — then the plaintiffs
have constitutional standing to bring these claims. Because we find
5
Here, too, the "withdrawal of funds from the Plan may have relevance
to the proceedings on remand." LaRue, 128 S. Ct. at 1026 n.6. For exam-
ple, should the plaintiffs prevail, the amount withdrawn may be a factor
in determining the additional amount to which the participant is entitled
to receive above what has already been received, as the date and time of
withdrawal may have influenced the extent of the various plaintiffs’ inju-
ries.
 IN RE: MUTUAL FUNDS INVESTMENT LITIGATION 21
both statutory standing and constitutional standing in the assumed cir-
cumstances of these cases, we reverse the judgments of the district
court and remand for further proceedings.

REVERSED AND REMANDED