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INSURANCE GROUP USA NEWS
High court greenlights worker's
401(k) suit
By
Kathy Chu, USA TODAY
A Supreme Court ruling Wednesday has opened the door to a
potential flood of lawsuits from workers who think they've lost
money through the negligence of those who run their 401(k) plan,
legal scholars say.
In a unanimous decision, the court said that James LaRue of
Southlake, Texas, could proceed with a lawsuit against his
employer to recover retirement-plan losses. LaRue claims he lost
$150,000 because his company never heeded his instructions to
transfer money to more conservative investments.
The Supreme Court didn't weigh the actual merits of LaRue's claim.
But the decision allowing the case to move forward could encourage
more 401(k) participants to bring lawsuits against employers, says
Doug Hinson, an Atlanta lawyer who represents employers in pension
law cases.
Some attorneys representing investors agree. "Any time you give
people who have been wronged the right to sue, there are going to
be more lawsuits," says Joe Peiffer, a New Orleans lawyer.
About 50 million workers have nearly $3 trillion invested in
401(k) plans, which have become U.S. employees' main source of
retirement savings as more companies have phased out traditional
pensions. Unlike traditional pensions, which guarantee workers a
set monthly payout in retirement, 401(k)s come with no guarantees.
The value of workers' nest eggs at retirement depends on how much
they invest and how well their chosen investments perform.
In LaRue's case, the key question was whether individuals could
sue their employers under a pension law — the Employee Retirement
Income Security Act — for a breach of fiduciary duty. That law
allows for recovery of losses to the "plan."
Justice John Paul Stevens, in his opinion for the court, wrote
that this includes "recovery for fiduciary breaches that impair
the value of plan assets in a participant's individual account."
The Supreme Court's ruling — which overturns an appeals court
decision — will make it easier for workers to sue employers,
financial firms and brokers in cases where employees weren't
enrolled in the 401(k) plan promptly, where their investment
changes weren't executed as requested or where workers put money
into investments touted by the company that later plunged in
value, legal experts say.
The LaRue case follows in the shadow of Enron and WorldCom, which
imploded in recent years amid accounting scandals. Workers
collectively filed a wave of lawsuits after losing their
retirement savings in those companies' stock. Before LaRue, no
case had definitively addressed whether workers could file
lawsuits over individual losses, says Peter Stris, the lawyer
representing LaRue.
Dallas Salisbury, president of the Employee Benefit Research
Institute, a non-partisan group, says his primary concern with the
court's decision is that it could encourage workers to bring
"frivolous litigation over administrative errors."
Also, "If you make it too easy to sue, then costs go up for
companies, and if costs go up, employers might get more hesitant
to offer 401(k) plans," says Lynn Dudley, senior vice president
for policy at the American Benefits Council, which represents
employers and financial firms that administer employee benefits.
Smaller employers that are already hesitant to provide 401(k)
plans and worried about incurring legal costs would be the most
likely to pull back, says Jeff Russell, a partner at Bryan Cave
law firm.
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