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.

from the November 26, 2007 edition

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On the other side of the case is LaRue's former employer, DeWolff, Boberg & Associates, a national management consulting firm based in Dallas. The administration of the firm's 401(k) plan is at the center of the controversy. The firm disputes LaRue's version of the facts. It says he made only one investment request, and that he rescinded the request because of market fluctuations.

On the law, DeWolff's lawyers argue that Congress intended a narrow interpretation of ERISA remedies. ERISA does not try to provide a remedy for every conceivable wrong, says DeWolff lawyer Thomas Gies of Washington, D.C., in his brief.

"LaRue just claims to have asked someone to make a change in his investment accounts that now, in hindsight, he thinks would have been a good one," Mr. Gies writes. "This is precisely the kind of 'heads I win, tails you lose' damages claim that Congress could reasonably believe should not be permitted."

The Bush administration filed a friend of the court brief siding with LaRue. "A holding that [LaRue] is not entitled to sue here would seriously undermine the protection ERISA provides for the retirement savings of millions of Americans," writes Solicitor General Paul Clement.

He adds, "ERISA is a complicated statute. But it is neither so complicated nor so counterintuitive that it leaves someone in [LaRue's] position without a remedy."

Industry groups are applauding the Fourth Circuit's ruling, warning that a victory for LaRue might trigger a flood of litigation related to individual accounts within broader retirement plans. That, in turn, might discourage employers from establishing retirement plans, or cause employers to reduce benefits to avoid potential liability, they say.

"[LaRue's] attempt to rewrite [ERISA] would have adverse consequences to the millions of private sector Americans who receive employee benefits from ERISA plans," states a friend of the court brief filed on behalf of the Chamber of Commerce of the United States.

Other analysts say ERISA's primary purpose is to protect workers and their retirement funds, not employers or account managers who mismanage retirement plans. "This case is about a plan that has directly ignored the request of a plan participant," says Rebecca Davis, a staff lawyer with the Pension Rights Center in Washington. "ERISA can't leave people with nothing."

Ms. Davis adds: "ERISA is not about erasing remedies. It was written to make sure that participants are receiving the benefits they earned and that promises are kept."

A decision in the case, LaRue v. DeWolff (06-856), is expected by June.

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