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Employees Can Now Sue Over 401(k) Accounts - Is This a Good Thing?
By JLP | February 26, 2008
From Financial Planning Magazine’s website comes this little news story:
Employees can now sue over mismanagement of their 401(k) accounts to recover their losses after the Supreme Court reversed a ruling on Feb. 21 the lower courts made more than 20 years ago.
In the unanimous opinion, Justice John Paul Stevens wrote that the landscape of retirement investing has changed since the earlier ruling and that this decision should give employees the right to sue over administrative problems with their accounts. “Fiduciary misconduct need not threaten the solvency of the entire plan to reduce benefits below the amount that participants would otherwise receive,” Stevens said.
Employment law experts say the ruling, which states that the Employment Retirement Income Security Act allows individual account holders to sue plan administrators for violating their fiduciary duties, leaves important questions unanswered. The court’s opinion did not disclose steps that must be taken prior to taking employers into court, such as appealing to the plan administrator.
I have a feeling that this going to cause lots of problems. For one, I can see it scaring employers away from offering a 401(k) plan in the first place. Second, I can see employee’s choices of funds being limited due to the employer’s fear that the employee may pick the wrong fund or put too much m0ney in one particular fund and end up suing the employer if things don’t work out. I can just hear all the future lawyer advertisments!
Of course there are times when pure neglect on the employer’s part should be addressed. For instance, there was an example in a recent Wall Street Journal article ($) of a guy who sued his employer because they didn’t make the changes that he requested to his account, which he says led to a $150,000 loss. What’s confusing about this is that the employee says he made requests for changes in 2001 and 2002 and the company didn’t follow through. I wonder why the employee didn’t follow up?
Anyway, I agree that companies should offer solid 401(k) plans to their employees and that any and all fees should be transparent so that the employee can see what’s going on with their money. These 401(k) plans should offer low-cost investment choices across all the major asset classes and employees should be required to take an asset allocation class and should also be required to sign an investment policy statement.
So, now it’s your turn to weigh in. What are your thoughts? I bet Jeremy has something to say about this!
Topics: 401(k), Investing, Retirement Planning |