Supreme Court Expands ERISA Remedies

In a case that could have far-reaching consequences for employers and employees alike, the U.S. Supreme Court ruled on Wednesday, February 20, 2008, that the Employee Retirement Income Security Act (ERISA) allows an employee to sue his employer because of a fiduciary breach that resulted in individual losses to his 401(k) plan.

James LaRue says he told his employer to change his investment allocations from mutual funds to cash and didn’t find out for 10 months that it didn’t follow his instructions. LaRue says that when he repeated his request, the employer again failed to do so. The result, according to LaRue, was that his plan assets were depleted by $150,000. He sued his employer under ERISA in an attempt to recover his losses.

The employer argued (and many observers believed) that ERISA provides a remedy only for fiduciary breaches that result in losses to the entire plan, not those that result in losses to an individual employee’s account.

In a highly technical reading of the statute, the Court disagreed. Generally, it ruled that unlike a defined-benefit pension plan, ERISA allows employees to recover for an employer’s breach of fiduciary duties with regard to a 401(k) plan regardless of whether it diminishes plan assets payable to all participants or only to one individual employee.

Many are predicting that the Court’s ruling will result in a slew of meritless litigation from employees whose 401(k) plans aren’t doing as well in a shaky economy. Look for more on this ruling in an upcoming issue of your state’s Employment Law Letter.