Supreme Court rules workers can sue over 401(k) losses

WASHINGTON – The U.S. Supreme Court ruled today that employees with 401(k) plans can sue to recover losses when their savings are not handled in their best interest, a decision that could spark claims against the retirement system that now predominates in the workplace.

More than 50 million workers have more than $3 trillion invested in 401(k) and similar retirement plans that rely heavily on employee contributions and do not guarantee benefits.

In the Supreme Court case, an employee named James LaRue claimed that the Texas consulting firm that employed him failed to follow his instructions to shift his investments, costing him $150,000. But some experts today said the decision could have far-reaching effects, and clarified that certain suits against 401(k) plans may be brought by individuals.

“This [decision] opens the door” to lawsuits in such contentious areas as fees charged by 401(k) and similar plans, and perhaps cases in which the share values of company stock take a plunge, said Ed Ferrigno, vice president of the Profit Sharing/401(k) Council of America. “This is going to apply to stock-drop cases,” he said. “It’s going to apply to fee lawsuits.”

Ferrigno said his 401(k) organization, which represents 1,200 companies whose plans cover 6 million workers, recognized the legitimate rights of workers. At the same time, employers, he added, “don’t want to be the victim of frivolous lawsuits.”

An attorney who is currently suing more than a dozen firms for charging excessive fees in their 401(k) plans said that the Supreme Court decision makes clear that employers have a legal responsibility to handle their employee’s retirement savings with care – and may be sued if they fail to do so.

“It supports what we have been saying all along,” said Jerome Schlichter, who is representing employees who claim their retirement accounts have been charged excessive fees by Lockheed Martin Corp., General Dynamics Corp., United Technologies Corp., Bechtel Group, Caterpillar Inc., Exelon Corp., International Paper Co. and other companies.

“These are real losses, and the people who have suffered have a right to be made whole, and this decision reinforces that principle.”

In its decision, the Supreme Court overturned a ruling by the 4th U.S. Circuit Court of Appeals in Richmond, Va. The Supreme Court also alluded to profound changes in the landscape of retirement since the Employee Retirement Income Security Act of 1974, a time when pensions typically guaranteed payments for life.

“That landscape has changed,” wrote Justice John Paul Stevens in his opinion for the court.

jonathan.peterson@latimes.com