High court greenlights worker's 401(k) suit
— -- A Supreme Court ruling Wednesday has opened the door to a potential flood of lawsuits from workers who think they've lost money through the negligence of those who run their 401(k) plan, legal scholars say.
In a unanimous decision, the court said that James LaRue of Southlake, Texas, could proceed with a lawsuit against his employer to recover retirement-plan losses. LaRue claims he lost $150,000 because his company never heeded his instructions to transfer money to more conservative investments.
The Supreme Court didn't weigh the actual merits of LaRue's claim. But the decision allowing the case to move forward could encourage more 401(k) participants to bring lawsuits against employers, says Doug Hinson, an Atlanta lawyer who represents employers in pension law cases.
Some attorneys representing investors agree. "Any time you give people who have been wronged the right to sue, there are going to be more lawsuits," says Joe Peiffer, a New Orleans lawyer.
About 50 million workers have nearly $3 trillion invested in 401(k) plans, which have become U.S. employees' main source of retirement savings as more companies have phased out traditional pensions. Unlike traditional pensions, which guarantee workers a set monthly payout in retirement, 401(k)s come with no guarantees. The value of workers' nest eggs at retirement depends on how much they invest and how well their chosen investments perform.
In LaRue's case, the key question was whether individuals could sue their employers under a pension law — the Employee Retirement Income Security Act — for a breach of fiduciary duty. That law allows for recovery of losses to the "plan."
Justice John Paul Stevens, in his opinion for the court, wrote that this includes "recovery for fiduciary breaches that impair the value of plan assets in a participant's individual account."
The Supreme Court's ruling — which overturns an appeals court decision — will make it easier for workers to sue employers, financial firms and brokers in cases where employees weren't enrolled in the 401(k) plan promptly, where their investment changes weren't executed as requested or where workers put money into investments touted by the company that later plunged in value, legal experts say.
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