Supreme Court Allows Suit over 401(K) Loss

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The U.S. Supreme Court ruled Wednesday that a man may sue the administrators of his 401(k) account because they didn't follow his buy and sell instructions, causing him to lose money.


The US Supreme Court is giving added protection to people enrolled in 401K plans. The court upheld your right to sue if those responsible for running the plans do not carry out your investment instructions. Here's NPR legal affairs correspondent, Nina Totenberg.

NINA TOTENBERG: 401(K) plans are pension plans in which employees typically put money into an investment account to build a nest egg for retirement. In many or more plans, the employer matches that amount. The 401(K) plan offers the employee a menu of choices on how to invest the money.

So, what happens if the managers of the account disregard those instructions? That was the question the Supreme Court tackled yesterday. James Larue(sp) of South Lake, Texas said he lost $150,000 when his pension plan managers failed to follow his directions to move his money into safer mutual funds. He sued to recover what he lost.

But the federal law that regulates pension funds refers to the plan, not to individuals and a federal appeals court ruled that individuals cannot sue to recover individual losses. Business groups back that point of view, but yesterday the US Supreme Court sided with Larue. Writing for the court, Justice John Paul Stevens said, Fiduciary misconduct need not threaten the solvency of the entire plan before a lawsuit can be brought. We hope that the federal law on pensions does authorize recovery for fiduciary breaches that impair the plan of plan assets in a participant's individual account. Nina Totenberg, NPR News Washington.

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