The Supreme Court handed workers a major victory yesterday by allowing them to sue over mismanagement of their 401(k) retirement accounts, in which more than 50 million employees have invested nearly $3 trillion.
The unanimous holding reverses a lower court decision that had barred individuals from suing over losses related to mistakes and misconduct, and thus had insulated employers from lawsuits even as more U.S. workers came to rely on the savings accounts to help fund their retirements.
Yesterday's decision will allow James LaRue to proceed with a case against his former employer, DeWolff, Boberg & Associates, over $150,000 in losses he claims he suffered after the Texas management consultancy failed to act on instructions to shift his retirement savings when the stock market hit turbulence more than six years ago.
In a telephone interview, LaRue, 47, criticized his former company for being "nonresponsive" when he asked to transfer his money from stocks into cash as the Internet bubble burst and the market plunged after the Sept. 11, 2001, terror attacks. LaRue, now a self-employed consultant to manufacturing and telecommunications companies, said his former colleagues at DeWolff Boberg were "hiding under the law."
Seems like a reasonable step forward--LaRue should get his day in court. The reaction from businesses are predictable:
Business advocates predicted the ruling would unleash a raft of lawsuits by employees, particularly as stock market volatility once again is causing havoc with investment accounts.
"Ultimately, employers aren't going to sponsor plans if they're going to be sued every time they make an innocent mistake," said Thomas Gies, a Washington lawyer who defended the consulting firm, which denies any wrongdoing.
Even innocent mistakes have consequences, and the entity that makes the mistake should pay to fix it. If an employer cannot sponsor a plan without making multiple innocent mistakes, then that employer should not sponsor a plan. The defense against lawsuits is to have clear procedures and to stick to them.