Supreme Court Says Individuals Can Sue Over 401(k) Losses

In a unanimous decision, the Supreme Court on Tuesday ruled that employees can sue their employers to recover loses from the mismanagement of a 401(k) plan. The decision, a reversal of the lower court, has implications for the more than 50 million individuals who have more than $3 trillion invested in retirement plans.

James LaRue sued his former employer under the Employee Retirement Income Security Act of 1974 (ERISA), alleging that he asked his employer to make certain changes to the investments in his individual account, but the employer never carried out these directions. LaRue claimed the employer's inaction cost him approximately $150,000. The U.S. Court of Appeals for the Fourth Circuit ruled that employers were not liable for losses suffered by their employees, even if the retirement accounts had been mismanaged. According to the court, ERISA "provides remedies only for entire plans, not for individuals."

In a decision written by Justice John Paul Stevens, the U.S. Supreme Court overturned the Fourth Circuit's decision. Stevens recognized that the retirement landscape has changed since prior decisions on this issue, with 401(k) plans increasing in popularity. Because 401(k) plans have individual accounts, Steven's wrote, an individual employee can sue his or her employer for mismanagement of the employee's account even if the entire plan is not affected.

To read the full decision in LaRue v. DeWolff, 552 U. S. ____ (2008), click here.