An employee who claims his 401(k) account lost value can sue the plan administrator for failure to follow the employee’s investment instructions.
On Feb. 20, the U.S. Supreme Court said in LaRue v. DeWolff, Boberg & Associates Inc. that the employee’s allegations stated a claim for breach of fiduciary duty in violation of § 502(a)(2) of the federal ERISA statute.
The high court reversed a 2006 decision by the Richmond-based 4th U.S. Circuit Court of Appeals that dismissed the employee’s suit. The Supreme Court rejected the 4th Circuit’s reasoning that the statute at issue did not provide a remedy for individual investors, only for an ERISA plan as a whole.
The retirement landscape has shifted from defined-benefit to defined-contribution plans, the Supreme Court said. Today’s 401(k) plans use individual investor accounts to fund retirement benefits. Under the Supreme Court’s ERISA interpretation, a plan participant’s individual account holds plan assets, so the individual can use the statutory remedy for an injury to the plan from a breach of fiduciary duty.