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Supreme Court allows employees to sue for 401(k) losses

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in Employee Benefits Program,Human Resources,Leaders & Managers,Management Training

In a decision that could spark more lawsuits against retirement plan administrators, the U.S. Supreme Court ruled on Feb. 20 that participants in 401(k) plans could sue to recover losses if they think their accounts were mismanaged.

In the ruling, the court said a Texas man should be allowed to try to recoup $150,000 he believes was lost after his retirement plan manager failed to follow his directions on investing his 401(k) money.

The decision overturns a lower court ruling that originally said the Employee Retirement Income Security Act (ERISA) allows lawsuits only for losses caused by the mishandling of the overall retirement plan, not mismanagement of individual accounts. This ruling confirms that individual lawsuits are allowed. (LaRue v. DeWolff, No. 06-856)

“Fiduciary misconduct need not threaten the entire plan’s solvency to reduce benefits below the amount that participants would otherwise receive,” the unanimous court wrote.

Outlook: Time will tell whether this leads to more ERISA claims. But some experts believe, for example, that an employee now could sue his employer for losses because he urged his employer to include, say Google, in the 401(k) portfolio years ago, but the company didn’t do it.

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