Vaughn v. Bay Environmental Management
United States Court of Appeals for the Ninth Circuit
19 September 2008
No. 05-17100 D.C. No. CV-03-05725-MJJ

ERISA Right of Defined Contribution Plan Participant Affirmed

Posed before the US Court of Appeals in this instant case is the question of whether or not a former employee who has received a full distribution of his or her account balance under a defined contribution pension plan has the right, as plan participant, to file suit under the Employee Retirement Income Security Act of 1974 or the ERISA to recover losses occasioned by a breach of fiduciary duty that allegedly reduced the amount of his/her benefits.

It appears that Jerry Vaughn and Theresa Travers are former employees of Bay Environmental Management Inc. They participated in two types of ERISA-governed retirement plans offered by the company, to wit:

1. Pension Plan”, funded solely by the discretionary contributions of Bay Environmental


2. Retirement Plan”, consisted of both profit-sharing component and a 401(k) component

Both Plans were individual account plans, a.k.a. defined contribution plans. All Plan investments were chosen by the Plan trustees and investment advisors except for the 401(k) component of the Retirement Plan, which was directed by the Plan participants.

Sometime after, Republic Services, Inc. purchased Richmond Sanitary Services, Inc. (RSS), of which Bay Environmental was an affiliate. At round the time of purchase, the Trustees of the Plans voted to terminate the Plans. Thereafter, Bay Environmental notified its employees that the Plans would be terminated.

Subsequently, the Trustees transferred all non-participant-directed plan assets to money market funds. Plan participants later on received a lump-sum distribution of the value of their individual accounts.

Nearly a year later, Vaughn filed suit on behalf of himself and all similarly-situated individuals against Bay Environmental and the Plans’ Trustees. He alleged that Defendants breached their fiduciary duties by investing the Plans’ assets imprudently.

The Defendants filed a motion to dismiss for lack of subject matter jurisdiction arguing that Vaughn lacked statutory standing under the ERISA. They specifically claimed that Vaughn failed to allege sufficient facts to bring him within ERISA’s definition of participant.

The district court granted the Defendant’s motion to dismiss. The court held that Vaughn was not a participant because he had received a lump-sum distribution of his individual account balance and was therefore not entitled to additional benefits under the plan.

Vaughn appealed.

In deciding the issue stated earlier, the US Court of Appeals quoted the definition of “participant” under the statute, to wit: “participant” means 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 which covers employees of such employer.

The Court of Appeals held that Vaughn is a participant under the statue and therefore has standing and ruled that the district court erred in dismissing the case.

The Court said that although Vaughn received a lump-sum distribution of the value of his individual accounts, he claims that he did not receive a “full” distribution because his accounts contained less that they would have if the fiduciaries had not breached their duty of prudent investment. Because Vaughn alleges that he did not receive everything that was due to him under the plan, he has standing.

The Court adopted the reasoning of the Seventh Circuit in a similar case, saying that if the plan documents entitle the former employee to the relief sought, the suit is for benefits and the plaintiff has standing.

Consequently, the Court ordered that the district court’s judgment be vacated, reinstated and remanded for further proceeding.