Yes, I Can Sue My 401(k) Administrator

401k lawsuitAccording to a NY Times article (registration required) yesterday, the US Supreme Court has ruled on February 20th that workplace retirement plan participants can sue the plan administrator to recover their losses under the Employee Retirement Income Security Act of 1974.

The case, LaRue vs. DeWolff 06-856, is filed by James LaRue of Southlake, Texas, who in the lawsuit claimed that “the value of his stock market holdings plunged $150,000 when administrators at his retirement plan failed to follow his instructions to switch to safer investments.”

In the ruling, Justice John Paul Stevens said that such lawsuits are allowed:

Fiduciary misconduct need not threaten the solvency of the entire plan to reduce benefits below the amount that participants would otherwise receive.

Is this a good news? Maybe, but I am not sure how much I can blame my 401(k) administrator for any loss of my investment because I myself manage what to invest. Seriously, a loss of $150,000 in a 401(k) plan is not going to happen over night. I wonder what that guy was doing when his account was shrinking.

Update: From the lawsuit:

Petitioner alleged that in 2001 and 2002 he directed DeWolff to make certain changes to the investments in his individual account, but DeWolff never carried out these directions. Petitioner claimed that this omission “depleted” his interest in the Plan by approximately $150,000, and amounted to a breach of fiduciary duty under ERISA.

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6 Responses to “Yes, I Can Sue My 401(k) Administrator”

  1. MossySF |  Feb 21, 2008 at 11:16 pm

    Hard to say what the details of the case are. All the articles are rather generic — only that the employer failed to implement to strategy he had selected. I remember reading an article stating LaRue submitted a fund switch request but didn’t check on whether it the plan administrator actually went through with the request until much later after a major loss was realized. The employer’s position was that was up to employees to confirm transactions and they are not responsible for mistakes they make on behalf of employees — only for outright fraud against the plan.

  2. Tim |  Feb 22, 2008 at 4:00 am

    I agree that everyone shouldn’t be jumping up and down about this ruling. The ruling simply allows a person to sue over fiduciary misconduct as listed in teh ERIS, which essentially means that if i say to execute an order and my fund manager doesn’t do it, then i can sue. it doesn’t mean that if my fund tanks without having provided any further instruction that i can sue.

    The ruling also isn’t a decision in favor of LaRue’s actual claim against Dewolff. He’ll still have to sue Dewolff again for the losses and prove that the Dewolff had acted out of misconduct.

    i think the ruling is pretty narrow and doesn’t open the flood doors for lawsuits if funds start tanking.

  3. paratrooperJj |  Feb 22, 2008 at 2:15 pm

    He directed his plan to make several changes that they failed to do. They should be liable.

  4. MossySF |  Feb 22, 2008 at 2:39 pm

    I do wonder though about how broad “directed plan” covers. I am the trustee for my company’s 401K plan and we use a vendor that does everything online. If the website didn’t work, am I liable for technology failures by our 401K vendor? Or perhaps the user didn’t make any such election, how would I prove they did not? (Can’t prove a negative as they say…)

    I will have to ponder this some more.