WASHINGTON — Workers gained a powerful weapon Wednesday by winning the right to sue employers when their retirement plans are mismanaged, raising the possibility of lawsuits over other worker-fund matters as well.
The U.S. Supreme Court ruled unanimously that workers could sue employers to recover losses when their 401(k) accounts were not handled in their best interests.
The decision has ramifications for more than 50 million workers who have more than $3 trillion invested in 401(k)s and similar retirement plans, which are typically funded by employees themselves.
It also could have a much wider effect, according to legal analysts, business groups and consumer advocates.
"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.
Some experts cautioned that the ruling also could lead small employers to abandon 401(k) plans, which had increasingly been used to supplant employer-funded pension plans. Companies also may raise administrative fees in the plans to cover the threat of new litigation, they said.
The decision was significant because the Supreme Court reversed lower-court rulings that had held employers not liable for losses suffered by their workers, even if accounts had been mismanaged.
The court decision was based on the complaint of a Texas man who said his instructions to shift money out of stocks and into safer investments were ignored, costing him $150,000.
"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.
Mishandling a retirement account causes "real losses," Schlichter said, "and the people who have suffered have a right to be made whole, and this decision reinforces that principle."
But Dallas L. Salisbury, president of the Employee Benefit Research Institute, said the ruling that individuals could sue -- even if the account was generally well run -- contradicted the understanding of many 401(k) industry experts.
"You could see a decline in the number of 401(k) plans being made available," he said, especially among smaller employers who may already be struggling to offer the plans.
