Supreme Court Broadens Grounds for 401(k) Suits
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WASHINGTON — The Supreme Court handed employees a major victory yesterday by allowing them to sue for mismanagement of their 401(k) retirement accounts, a ruling that could affect more than 50 million employees with nearly $3 trillion invested in the popular plans.
The unanimous holding reverses a lower court decision that had barred individuals from suing for losses related to mistakes and misconduct and thus had insulated employers from lawsuits even as more American employees rely on the savings accounts to cushion their retirement.
In the opinion, Justice John Paul Stevens recognized that the landscape of retirement investing had been reshaped since the high court’s last ruling on related issues more than two decades ago. Since then, individual plans known as 401(k) accounts have mushroomed as employers moved away from defined-benefit plans. As a result, Justice Stevens wrote, courts should interpret employee benefits law as giving individuals the green light to sue over administrative problems with their accounts, rather than limiting cases to those that affected an employer’s “entire” retirement savings plan.
Yesterday’s decision will allow James LaRue to proceed with a case against his former employer, DeWolff Boberg & Associates, over $150,000 in losses he claims that he suffered after the Texas management consultancy failed to act on instructions to shift his retirement savings when the stock market hit turbulence more than six years ago.
In a telephone interview, Mr. LaRue, 47, criticized his former company for being “nonresponsive” when he moved to transfer his money from stocks into cash as the Internet bubble burst and the market plunged after the September 11, 2001 terror attacks.
Business advocates predicted the ruling would unleash a raft of lawsuits by employees, particularly as stock market volatility once again is wreaking havoc with investment accounts.
“Ultimately, employers aren’t going to sponsor plans if they’re going to be sued every time they make an innocent mistake,” Thomas Gies, a Washington lawyer who defends the consulting firm, which denies any wrongdoing, said.
