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Supreme Court: You Can Sue Your Boss

A lawyer says companies will pass along the cost of defending lawsuits to 401(k) participants.

An interview with Jeffrey Russell, a lawyer with Bryan Cave, in St. Louis, whose specialties include federal class-action suits, shareholder claims and employee benefits.

What are the implications of this ruling?
Companies had contended that 401(k) plan participants didn't have a right to sue to recover losses in their own account. The entire plan had to lose money as a result of a breach of duty, and the only right was to seek recovery on behalf of the entire plan. True, most people probably thought they could sue. This decision makes it clear that you do have a right to sue when mistakes are made that impair the value of your account.

What sorts of mistakes?
Mistakes involving investment decisions, such as instructions to buy or sell, certainly. But also, were assets moved into the right mutual fund? Was it bought or sold at the right time? Was the purchase or sale made for the right amount?

Then there are a whole series of questions concerning administration -- having to do with enrollment, for instance, or cash-out instructions. I think those are also covered by the opinion, but we'll have to wait and see. And some questions remain open, including whether the fees in a 401(k) are reasonable and whether appropriate investment options are being offered. We're going to see more lawsuits over the next three to four years as plan participants and their attorneys probe the limits of this decision.


So if I lose money, is my boss on the line?
No, you can't simply look at performance and say there was breach of duty. Did the plan sponsor follow the proper process for selecting good service providers? Were there good reasons for selecting a mutual fund? Did the sponsor continue to monitor the fund manager once it selected the fund? A 401(k) is not an insurance policy. It doesn't guarantee investment results.

What's the fallout for employers who sponsor the plans?
It will raise the cost of offering 401(k)s because employers will have to defend themselves against more lawsuits, whether the suits are successful or not. Those costs will be passed along to individual participants. Some companies may decide not to offer a plan at all. But they offer so many advantages over defined-benefit pension plans. I'm sure we won't see a significant drop.