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Supreme Court rules that employees can sue 401(k) managers

The 7-to-2 decision gives workers and retirees recourse for the mishandling of individual retirement accounts.

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American workers can sue the manager of their 401(k) retirement plan if the manager fails to properly follow investment instructions.

The US Supreme Court on Wednesday ruled in favor of a worker who said his retirement account was deprived of $150,000 in earnings because the manager of his 401(k) plan allegedly ignored his instructions, keeping the money in less lucrative investments.

The Supreme Court said in a 7-to-2 decision that the Employee Retirement Income Security Act of 1974 (ERISA) authorizes retirement account holders such as James LaRue to sue to recover investment losses when retirement plan managers breach their fiduciary duty.

"The principal statutory duties imposed on fiduciaries by [ERISA] relate to the proper management, administration, and investment of fund assets, with an eye toward ensuring that the benefits authorized by the plan are ultimately paid to participants and beneficiaries," Justice John Paul Stevens writes in an eight-page opinion. "The misconduct alleged by [Mr. LaRue] in this case falls squarely within that category."

The decision is important because it helps identify remedies available to retirees and prospective retirees who face fiduciary misconduct related to their 401(k) or other retirement accounts. It comes at a time when most companies have abandoned traditional pension plans in favor of retirement investment accounts.

An estimated 50 million private-sector employees have invested $5.5 trillion in retirement plans regulated by the federal government under ERISA.

The decision stems from a lawsuit filed by LaRue against his former employer, the management consulting firm DeWolff, Boberg & Associates. The suit alleged that the company had breached its fiduciary duty to administer LaRue's 401(k) retirement account in accord with LaRue's instructions.

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