Supreme Court Approves Individual 401(k) Suits

The United States Supreme Court unanimously voted to allow individuals with 401(k) retirement accounts to sue under the Employee Retirement Income Security Act for certain losses. The issue at hand was language in the law that referred to recovering money for the “plan” rather than the account holder. Interestingly, the Bush administration was on the side of the employee on this one.

The case stemmed from a dispute James LaRue of Southlake, Texas, had with his 401(k) plan’s administrators at his company, DeWolff Boberg & Associates. He said that the value of his stocks dropped more than $150,000 after the administrators failed to follow his instructions to move his money to safer investments.

The administrators said Mr. LaRue didn’t have standing to sue because the law addresses the plan not individuals. Their lawyers argued that ERISA encourages employers to set up 401(k) plans, while guarding against administrative abuses involving the plan as a whole.

The court held that that was so much bullshit. “Fiduciary misconduct need not threaten the solvency of the entire plan to reduce benefits below the amount that participants would otherwise receive,” Justice John Paul Stevens wrote in his opinion for the court. The individual account holder needs to right to sue to protect himself.

Thomas Gies, who took the administrators’ case, said, “The employer community can expect a variety of claims brought by 401(k) plan participants who seek to recover alleged losses to their individual accounts.” He added employers likely will face suits “even in cases involving simple mistakes made by those involved in plan administration.”

But maybe they shouldn’t be making mistakes that cost people money. MSNBC noted, “The Bush administration argued in support of workers. The government said the appeals court ruling barring LaRue’s lawsuit would leave 401(k) participants without a meaningful remedy from any federal, state or local court when plan administrators fail to live up to their duties.” Exactly.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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