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U.S. Supreme Court

Supreme Court Allows Lawsuit Alleging Mishandled 401(k)

Posted Feb 20, 2008 11:52 AM CDT
By Debra Cassens Weiss

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Updated: The U.S. Supreme Court ruled today that an employee who says he lost $150,000 because of a mishandled 401(k) plan may sue the administrators for a breach of fiduciary duty, SCOTUSblog reports.

The Associated Press reports that the decision "has implications for 50 million workers with $2.7 trillion invested in 401(k) retirement plans."

James LaRue claims he lost the money because administrators twice failed to follow his direction to move the money to safer investments. At issue was whether the Employee Retirement Income Security Act ERISA allows damage lawsuits by individuals.

The 4th U.S. Circuit Court of Appeals based in Richmond, Va., had ruled that ERISA permits suits to enforce the rights of a whole plan rather than a single account holder. But the Supreme Court said one of its previous opinions that emphasized protecting the “entire plan” from fiduciary misconduct concerned the older, more traditional retirement plans that paid defined benefits based on a percentage of an employee’s salary.

The new case, LaRue v. DeWolff, Boberg & Associates, concerned a 401(k), a defined contribution plan involving individual accounts, Justice John Paul Stevens said wrote in his opinion for the court (PDF posted by SCOTUSblog).

The prior opinion's "emphasis on protecting the 'entire plan' from fiduciary misconduct reflects the former landscape of employee benefit plans," Stevens wrote. "That landscape has changed."

In the new, more prevalent defined contributions plans, he wrote, “fiduciary misconduct need not threaten the solvency of the entire plan to reduce benefits below the amount that participants would otherwise receive.”

The court therefore holds that ERISA "does authorize recovery for fiduciary breaches that impair the value of plan assets in a participant’s individual account," he said.

Updated at 11:17 a.m. to add information from Associated Press.

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