Finance

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401(k) Subscribers Can Now Sue for Losses

February 21, 2008 03:18 PM
by findingDulcinea Staff
The Supreme Court ruled Wednesday that employees can sue employers who mismanage their 401(k) retirement plans. But some think the decision has loopholes.

30-Second Summary

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The case was first brought before the Supreme Court last year. Southlake, Texas, resident James LaRue said he lost $150,000 when the administrators of his 401(k) ignored instructions to move his assets to safer investments.

At issue was whether or not the Employee Retirement Income Security Act (ERISA) allowed LaRue to sue his employer, consulting firm DeWolff Boberg & Associates, for the losses.

The Supreme Court’s decision overturned a ruling by the Fourth Circuit in Richmond, Va., that stated ERISA makes administrators liable for the mismanagement of entire plans, but not for individual accounts.

According to The New York Times, there are currently 50 million workers with $2.7 trillion invested in 401(k) plans. These plans, unlike traditional pensions, allow the subscriber to choose where to invest their money.

Despite the obvious win for LaRue, Karen Donovan writes in Conde Nast Portfolio that the decision is a “dark victory.”

According to Donovan, “Corporate lawyers are already finding a silver lining in a concurrence written by Chief Justice John Roberts,” which suggests that 401(k) claims could be filed as claims for “denial of benefits” under another provision of ERISA. That would require the employee to exhaust internal remedies before filing suit.

Paul Secunda of Workplace Prof Blog further emphasizes the point, suggesting that Justice Roberts’ concurrence “has the potential to completely undermine the holding of the LaRue majority.”

This, Secunda says, would be “disastrous for ERISA participants.”

Headline Link: ‘Court Says 401(k) Participants Can Sue’

Background: The original LaRue case

Opinions & Analysis: Is this a real win for employees?

Related Topic: ‘Americans Unprepared for Retirement’

Reference: The guide to retirement and ERISA

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