The Supreme Court gave workers a major victory by allowing them to sue over mismanagement of their 401(k) retirement accounts.Â Wednesdayâ€™s ruling could affect over 50 million employees with nearly $3 trillion invested in such retirement plans.Â The courtâ€™s unanimous holding reverses a lower court decision barring individuals from filing <"http://www.yourlawyer.com/practice_areas/other_topics">401K lawsuits over losses related to mistakes and misconduct and which had also protected employers from lawsuits.Â That earlier decision was a blow to workers during a time when U.S. workers relying on the savings accounts to cushion their retirement was on the rise.
Justice John Paul Stevens recognized that retirement investing had been undergoing change since the high court’s last ruling on related issues over 20 years ago as individual plansâ€”known as 401(k) accountsâ€”burgeoned while employers moved away from defined-benefit plans.Â As a result, 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.
Wednesday’s decision allows James LaRue sue his former employer, DeWolff Boberg & Associates, for over $150,000 in losses he claims occurred after the Texas management consultancy failed to act on instructions to shift his retirement savings when the stock market hit turbulence over six years ago.Â LaRue, 47, criticized his former company for being “nonresponsive” when he moved to transfer his money from stocks into cash during the Internet crash and the post September 11th market plunge.Â The Labor Department and Solicitor General, who argues the Bush administration’s position before the Supreme Court, backed LaRue.Â Assistant Solicitor General Matt Roberts argued in November that any recovery by the plaintiff would benefit the company’s retirement plan as a whole in keeping with the law, known as the Employee Retirement Income Security Act, or ERISA.Â “Today’s decision supporting our position is a huge victory for workers and retirees,” said Labor Secretary Elaine Chao.
Peter Stris, a professor at Whittier Law School said the decision protected the savings of everyone with a 401(k).Â “If the lower court opinion had stood, it would have prevented the Department of Labor from pursuing claims when retirement funds had been stolen or mismanaged,” he said.
Business advocates predicted the ruling would unleash a number of lawsuits by employees, particularly as stock market volatility again upsets investment accounts.Â Employment law experts said the decision leaves some issues unanswered such as questions about other steps workers must take before suing over retirement savings disputes.
Chief Justice John Roberts agreed that reasoning by the U.S. Court of Appeals for the Fourth Circuit was “flawed.”Â While others wonder if plaintiffs could recoup their losses if they do not first follow set procedures, such as an appeal to the plan administrator.Â Others worry that the courtâ€™s move will enable severe punishment for minor mistakes.Â In past cases, the Supreme Court gave administrators wide latitude to develop standards for eligibility and other terms, judgments that courts can review only for an abuse of discretion.