Supreme Court Allows Individuals to Sue Their 401(k) Plan

Yesterday, the Supreme Court unanimously voted to allow individuals to sue their 401(k) plan administrators for mistakes made in administering their plan. Until this ruling, individuals were only allowed to sue their 401(k) plan administrator on behalf of all plan participants, essentially in cases where the administrator absconded with plan funds.

So what does this really mean for your 401(k) plan? The general outcome is unknown, but what is certain is that it will lead to more litigation aimed at 401(k)’s. In essence this ruling allows people to sue if their plan administrator breaches their fiduciary responsibility. The question really is, what falls under that responsibility? Is it merely, as in this particular case, moving the funds around as requested by the participant, or will it encompass other things like the number of fund choices available, the overall costs of the plan, the default investment choices and any one of the myriad options a plan provider must consider? Only a string of litigated cases will start to define the scope of this ruling.

The fear is that small employers, already struggling to pay for plans, will simply decide that the potential cost of defending cases will simply cause them to eliminate the plans altogether. Others think that the costs of the plans will increase to cover the cost of potential future litigation.

We’ll keep you posted as this thing plays itself out.