Show Me The Money! Supreme Court Rules That Employers Are Liable For Mismanaged 401(k) Accounts

By: Gerri L. Elder

On February 20, 2008, more than 50 million workers in the United Stated were given the green light by a unanimous Supreme Court decision to sue over mismanagement of their 401(k) retirement accounts. The Washington Post reports that the decision overturned a decision by a lower court that prevented workers from suing their employers over financial losses related to misconduct or management mistakes.

The lower court ruled more than 20 years ago to protect employers from being sued by employees over the mishandling of 401(k) retirement accounts. Since that time people have started to depend more on these savings accounts to finance their retirements and employers have shifted away from pension plans.

Justice John Paul Stevens recognized the changes in retirement planning and investing over the last two decades. In the opinion he wrote that courts should interpret employee benefits law as the removal of the hurdle for individuals who wish to file lawsuits over the mismanagement of their 401(k) accounts. The Supreme Court decision does not require that an employee's entire retirement savings plan to be affected in order for a lawsuit to be filed over administrative problems with their savings.

The recent Supreme Court decision is of great importance to James LaRue. LaRue claims that he suffered losses of over $150,000 because his former employer, DeWolff, Boberg & Associates did not shift his retirement savings when he instructed them to do so because the stock market was becoming too risky. He may now proceed with a lawsuit against the firm.

The Labor Department and the solicitor general fought for LaRue's cause before the Supreme Court. In November, Assistant Solicitor General Matthew D. Roberts explained to the court that a victory for LaRue would better the company's retirement plan as a whole as it would ensure that they are compliant with the Employee Retirement Income Security Act.

LaRue's lawyer said that the Supreme Court decision benefits all workers with a 401(k). Under the lower court's ruling, employees had no recourse if their retirement funds were mismanaged, lost or stolen.

Now LaRue must prove that his employer ignored his request to convert his 401(k) savings into cash as the Internet bubble burst and the stock market became turbulent after the September 11, 2001 terrorist attacks. The lawyer for DeWolff, Boberg & Associates intends to defend his client vigorously in court and believes that the company will not be found liable for any wrongdoing.

Not everyone is pleased with the Supreme Court decision. Of course it is a setback for LaRue's former employer, but business advocates have also predicted that the decision will cause a flood of new lawsuits by employees. Employment law experts also criticize the ruling as they say that it leaves important questions unanswered.

No one is completely sure at this time what criteria must be met and what procedures that employees who wish to sue over 401(k) mismanagement will have to follow. However, with LaRue ready to take on his former employer in court, the answers to these questions are likely to be established as this lawsuit, and the ones that will follow, unfold.