In a landmark ruling on Wednesday, February 20th, the U.S. Supreme Court ruled in favor of an individual employee's right to sue his or her employer to recover losses in their retirement accounts. Formerly, only a large group of a company's employees could file such lawsuits, and then only if they met "class action" status.
In the case of LaRue vs. DeWolff, the Supreme Court unanimously voted to reverse lower-court rulings that had held employers not liable for losses suffered by their employees, even if accounts had been mismanaged. It is a bit of an understatement to say that this is a big decision.
In summary, the Supreme Court's ruling means...
- Litigation attorneys can earn compensation for initiating individual cases and need not prove massive failures
- Every plan sponsor is liable for participant losses in the event of administrative failures
- Plan sponsors must obtain maximum fiduciary protection.
Here are some comments by industry insiders on the impact of this decision:
"This opens the door to a variety of worker lawsuits, including challenges to the fees that workers are charged to administer their savings plans," said Ed Ferrigno, vice president of the Profit Sharing/401(k) Council of America.
"It supports what we have been saying all along," said Jerome Schlichter, a lawyer for employees who claim their retirement accounts have been charged excessive fees by a string of blue-chip companies, including Lockheed Martin Corp. and Bechtel Group.
"American workers and retirees should have the right to seek justice when their trust is violated by the very companies that manage their hard-earned retirement savings, and thanks to today's decision, they now have that right," said Rep. George Miller (D-Martinez), chairman of the House Education and Labor Committee, in a statement.
"My sense is this will end up producing a tremendous amount of litigation," said Mary Ellen Signorille, an attorney with the AARP Foundation.
You and your retirement plan officials will be inundated with press releases, articles, and briefings about this case. And I'm quite sure that your bosses and board of directors will be very interested to know how this case affects them personally as well as corporately.
The bottom line is this: there is no insurance policy, service provider contract, or investment strategy that can protect a retirement plan fiduciary from this risk. The only defense is a proactive system that establishes committee processes, documents decisions, and measures action steps.
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Contact us to learn how you can mitigate risk and prove that you adhere to the highest industry standards.
