WASHINGTON — James LaRue says he lost $150,000 when his instructions to his employer for where to invest money in his retirement plan were ignored.
Now the Supreme Court will decide whether a federal pension-protection law gives LaRue the right to sue to recover his losses. Arguments in the case, which is likely to have far-reaching consequences, were scheduled for today.
LaRue, who used to work at a management consulting firm, is among the 42 million workers who contributed to a 401(k) retirement plan. At issue in his case are the limits to lawsuits under the Employee Retirement Income Security Act. It regulates private-sector retirement plans holding more than $5.5 trillion in assets, including $2 trillion in an estimated quarter of a million 401(k) plans across the country.
Unlike those in traditional pension plans, participants in 401(k) plans -- named after a section in tax law -- do not know how much money they will receive in retirement. It depends on how well their chosen investments perform.
ERISA was designed to safeguard pension fund money from misappropriation. The 1974 law followed the failure of some companies to pay promised pensions and the looting of some pension and welfare funds at companies and labor unions.
Class-action suits filed under the law over the last decade have targeted Enron Corp., WorldCom Inc. and other major companies tainted by scandal.
From a legal standpoint, it is less clear what action an individual account holder can take against a retirement plan when the conduct at issue is less than criminal.
LaRue said that in 2000 and 2001, he requested changes in his investment allocations in mutual funds that were available to participants in his company's 401(k) plan. He said the requests were not honored.
"I wanted to sell stocks and move to cash because I thought the market would head down. I was right," LaRue said in a telephone interview. "I didn't find out that the plan had not executed my transactions until 10 months later. They had a substandard reporting system. I left the firm. I asked them again to make the change, and they still didn't do it. I don't know why."
The Bush administration, siding with LaRue, says an appeals court ruling against him would leave participants in "the most common form of pension plan who have been injured by a breach of fiduciary duty without a meaningful remedy from any court."
