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Supreme Court Upholds Right To Sue 401(k) Administrators

Unanimous decision defends right of individuals to sue

By Mark Huffman
ConsumerAffairs.com

February 20, 2008

An estimated 70 million people in the U.S. have a 401(k) or other type of retirement savings and investment account.

The court ruled in the case of a consumer who said he lost nearly $100,000 from his retirement account because his employer did not act on the investment changes in requested in his account. The justices ruled in his favor and, for the first time, found that individual participants in a plan had standing to sue over the handling of a single account.

The ruling affects all defined-contribution retirement programs, including 401(k), employee stock ownership (ESOP) and profit-sharing plans. Defined contribution accounts have an estimated $3.3 trillion in assets.

The case stems from the steep stock market selloff in the weeks following the September 11, 2001 terrorist attacks.

James LaRue told the court he submitted a number of changes to his 401(k) plan in an effort to mitigate losses from the market's rapid decline. According to LaRue's attorney, his employer, DeWolff Boberg & Associates of Dallas, Texas, didn't follow his instructions.

The result, he claimed in court, was a loss of almost $100,000.

The Supreme Court took the case after a lower appeals court in Virginia refused to hear it, saying suits such as LaRue's weren't allowed under the 1974 Employee Retirement Income Security Act (ERISA).

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