Labor & Employment Law

U.S. Supreme Court Allows 401(k) Claims

By Dobin & Jenks

There has been a huge shift in the United States from defined benefit retirement plans, where an employee is guaranteed a fixed payment upon retirement, to defined contribution plans, where the employee makes the contribution and maybe the employer makes a matching payment. Defined contribution plans are considered cheaper for the employer.

The best known defined contribution plan is the 401(k). In a 401(k), the employee contributes to the plan and chooses the investment strategy. A plan administrator offers a variety of investment vehicles, usually associated with mutual fund-type investments, and the employer may offer to match a percentage of the employee's contribution. The employer is called the plan sponsor.

There was some discussion in legal circles as to whether or not an employee, the "plan participant," could bring an action against the plan administrator regarding administration of the plan. ERISA lawyers, who are apparently immune to boredom, batted this around at some length for a while. The Supreme Court brought an end to this discussion and made a logical decision in my view.

In Larue v. DeWolff, the Supreme Court held that an administrator can be held liable to an individual participant, not just the plan, if the administrator screws up. Now how hard was that? Logic would tell you that if it's the participant's money, and the administrator is responsible for dealing directly with the participant, then the administrator has a problem if they/he/she don't listen to the participant's instructions, which was the case in LaRue.

This is what's wrong with the law. Logic gets suspended while egghead lawyers sit around and argue about the placement of a comma in a sentence or the meaning or a single word in a paragraph. Why couldn't someone just say "duh" (not "doh!")? I, for one, am glad to see that our Supreme Court got it right this time. Now, if we could only get Congress to worry about something other than flawed arbitration studies....

That's the view from The Law Planet - Jupiter, Florida.

Full post as published by The Law Planet Blog on February 20, 2008 (boomark / email).