The U.S. Supreme Court is always good theater. They may not be as entertaining as the House of Lords, but those wacky justices are often the least predictable branch of the federal government. Clarence Thomas notwithstanding.
They proved that again in mid-February with a surprise unanimous decision backing a lawsuit filed by a 401(k) participant against his plan sponsor.
It's hard to pin down which is more startling: this deeply divided group of justices -- perhaps the most fractious in the court's history -- all agreeing on something, or the utter lack of mainstream press coverage this case received. This decision only sends a ripple effect that could crash into 50 million workers across the country -- and their $2.7 trillion in these plans.
Texan James LaRue kept insisting his employer move his 401(k) plan investments into safer waters. His calls went unheeded. And his retirement tumbled $150,000. So, he sued.
The issue that emerged in the dozens of filings and oral arguments was whether the Employee Retirement Income Security Act allowed individual account holders to sue plan administrators for breach of fiduciary duty.
And the court ruled overwhelmingly that, yes, plan participants can sue to protect their nest eggs.
Now, any other time, this would be the part where we bash the trial lawyers and our overly litigious society, but this time it certainly seems as if the court got it right.
The times have changed, to say the least, since ERISA became law, and it's past time the courts moved to tweak it accordingly. Plan sponsors can no longer sit back and wipe their hands when it comes to administering employee retirement plans. There is a certain level of responsibility -- and accountability -- that comes with that 4 percent-matching 401(k) plan.
Of course, fears of a flood of class action claims are natural -- and the court certainly left that door wide open -- but employers must heed this wake-up call.
"From the societal point of view, these employers, when acting as plan fiduciaries, will likely be more attentive and careful in implementing the investment instructions provided by the plan participants," explains Barry Kozak, associate director of the graduate-level employee benefits program at the John Marshall Law School in Chicago.
With the near extinction of defined-benefit plans and the growing use -- and automation -- of their defined-contribution counterparts, this ruling is great news for investors across the board, but is almost certainly the best thing to happen to employees since pet insurance.
By the way, don't forget to wish us a happy birthday. This issue marks our fifth. If only someone would send us a cake...
Denis Storey
Editor
dstorey@benefitssellingmag.com
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From the April 2008 issue of Benefits Selling Magazine • Subscribe!
