Today the Supreme Court said that a 401(k) participant can sue for losses when a plan fiduciary fails to follow investment directions. A copy of the opinion is here. In the case, James LaRue of Southlake,Texas, contends that his stock market holdings plunged $150,000 because administrators of his 401(k) retirement plan failed to follow his instructions to switch to safer investments. The opinion clarified a remedy issue left open by a 1985 case, Massachusetts Mutual Life Insurance Company v. Russell, 437 U.S. 134 (1985).
The court’s majority opinion is based in part of the fact that the retirement “landscape has changed” in the 23 years since ERISA remedies were limited in Russell 23 years ago. The case potentially affects 50 million workers with $2.7 trillion invested in 401(k) plans. The decision gives a green light to more litigation to manage the nation’s retirement security. I am reminded of the observation made by the judge in the CIGNA cash balance case reported below:
Difficult, time-consuming, and expensive litigation with uncertain results – such as this case represents – is assuredly not a sensible way to manage the Nation’s retirement system for either employers or employees. Sadly, at least for now, litigation appears to be the only option available to them.
The ruling comes at a time that pension plans are being replaced by defined contribution plans as the only form of retirement security for many workers. At the same time, more people than ever are tapping their 401(k) account for cash and older workers are being told that they need to work longer.