Can you sue if your 401(k) nest egg is mishandled?
The US Supreme Court on Monday hears a case that will determine if individuals have redress under federal law if their savings plan is mismanaged.
By Warren Richey | Staff writer of The Christian Science Monitorfrom the November 26, 2007 edition
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WASHINGTON - Like millions of American workers, James LaRue was counting on his 401(k) retirement savings plan to provide a financial cushion when he stopped working. He made regular contributions to it, and hegave instructions to the plan manager on how to invest his portion of the funds.
But on at least two occasions, the manager allegedly ignored Mr. LaRue's investment instructions, keeping the money in less lucrative investments. As a result, LaRue's retirement account was deprived of $150,000 in potential profits.
LaRue sued the plan manager in federal court for alleged breach of fiduciary responsibilities. But the case was thrown out.
On Monday, LaRue takes his case to the US Supreme Court, where the justices must decide whether the federal law regulating retirement plans allows LaRue to sue his plan manager to recover the $150,000. Previously, an appellate panel, in dismissing LaRue's complaint, said the law provides remedies only for fiduciary breaches that cause losses to an entire retirement program rather than merely to one individual's account.
The case will define the scope of remedies available to prospective retirees who discover fiduciary misconduct related to their 401(k) or other retirement accounts. It arises at a time when most companies have abandoned traditional pension plans in favor of retirement investment accounts.
"This is something that really affects nearly every worker," says Paul Montuori, a Westbury, N.Y., lawyer who filed a friend of the court brief on behalf of 11 law professors who are specialists in retirement benefits law.
An estimated 50 million private-sector employees have invested $5.5 trillion in retirement plans regulated by the federal government. The Employee Retirement Security Act of 1974 (ERISA) provides remedies to safeguard employees and their retirement savings plans.
But it is not clear how expansively or narrowly Congress meant ERISA to be read in cases like LaRue's. The trend at the Supreme Court in recent years has been to adopt a narrow reading of remedies available under ERISA in other contexts.
LaRue's lawyers say the appeals court misread the law. "ERISA nowhere requires that plan losses must affect more than one participant," says Peter Stris, a Whittier Law School professor, in LaRue's brief to the court. "To the contrary, the statute makes clear that any plan losses will do."
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