401k Problems

February 26, 2008

If an impending recession, credit crisis and housing meltdown wasn’t enough, there has been a ruling that will now allow for workers to sue their employers if they have losses in their 401k plan. That’s right!

Now, employees may be able to have a defensible position that actually allows for recovery if they lose on investments of their choosing.

This is ridiculous! Of course it is important to ensure an employees rights, yet there is some point that people are responsible to themselves.

In a time that will surely have employers scrambling to find ways to cut back on overhead, this adds a new wrinkle and the potential for liability on the pension plan that was supposed to give employees the ability to have control over their retirement destiny. Bad idea!

The Wall Street Journal reported:

The U.S. Supreme Court unanimously upheld the right of workers to sue over losses in their 401(k) retirement-savings accounts in some circumstances, but pension-law experts said a minority opinion in the case could also bolster some defenses used by employers.

The ruling yesterday could affect dozens of retirement-plan lawsuits brought by workers against their employers. Retiree advocates praised the decision. “We’re excited about it,” says Rebecca Davis, a staff attorney with the Pension Rights Center, a retiree-advocacy group in Washington.

But employers may find solace in a minority opinion by Chief Justice John Roberts, which, while concurring with the majority, appeared to offer companies a roadmap for combating similar cases in the future.

Employers — or whoever they appoint in their stead — have an established obligation to run retirement plans as “prudent experts” on behalf of participants. Failure to do so can invite litigation, says Gregory Ash, an Overland Park, Kan., pension attorney. Recent cases have included allegations that employers offered participants unwise investment choices, or allowed investment managers to charge participants unreasonably high fees.

At issue in the case before the Supreme Court was whether federal pension law, which allows lawsuits on behalf of a group of employees, also allows an individual to sue over losses in his own account in a 401(k) or similar plan.

Previous case law allowed participants to sue employers over losses on behalf of the retirement plan as a whole. But the prior ruling had arisen in traditional pension plans, in which assets are invested collectively. Employers have argued that participants couldn’t file the same kind of suit over losses in 401(k)s and other individual accounts because they didn’t represent losses to the plan itself.

Read more