401k Participant Can Sue
Supreme Court overrules lower court
By Kaye A. Thomas
Posted February 25, 2008
Harm to entire plan not necessary.
Participants in most 401k plans are allowed to determine how their account is invested by allocating it among the investments permitted by the plan. Participants are also allowed to change those investments from time to time. A recent decision by the Supreme Court involves a 401k plan participant who claims the company failed to follow his directions to change the way his account was invested, resulting in a loss of some $150,000.
When James LaRue filed suit over this loss, the company argued that an individual participant in a 401k plan isn't allowed to sue for harm to an individual account. A previous decision by the Supreme Court seemed to support the notion, indicating that a suit was permitted only in a situation where a breach of fiduciary duty resulted in harm to the overall plan. Relying on that decision, the trial court said a suit would not be permitted, and an appeals court sided with the company as well, leading LaRue to take his case to the Supreme Court.
The Justices couldn't agree entirely on the appropriate reasoning for the case and ended up writing three different opinions. Yet they were unanimous in finding that the lower court erred. As a result, the case establishes that an individual whose account in a 401k plan is harmed by a breach of fiduciary duty has the right to sue for recovery.
The Court's decision doesn't determine whether a breach of fiduciary duty actually occurred. LaRue will still have to make that case. The significance of the decision is that LaRue, and others with similar complaints, can get their day in court.
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