High court ruling on 401(k) suits to be tested in Charleston

A far-reaching U.S. Supreme Court ruling allowing many individual workers to sue if their retirement funds are mishandled is expected to get its first test in Charleston.

In a unanimous decision, the nation's high court ruled Wednesday in favor of James LaRue, who alleged that he lost $150,000 after his employer, management consulting firm DeWolff Boberg & Associates Inc., did not follow his instructions to switch stock-market holdings in his 401(k) plan to safer investments.

The impact of the decision is being closely watched, most notably by businesses that offer the retirement accounts to their workers. It is estimated that 50 million employees have $2.7 trillion invested in 401(k) plans.

Two lower courts, including the U.S. District Court in Charleston, disallowed LaRue's complaint. The Supreme Court agreed to hear arguments last year.

In their ruling the justices agreed that LaRue, who lives in Texas, could sue to recover not only his losses but any profits he would have earned from that money.

"It's a very, very big ruling, and actually it's more than I could have personally hoped for," said Greenville attorney Robert Hoskins, who helped represent LaRue in the appeal.

Hoskins said the original case will 'go back to square one,' to where it was filed. 'What will happen is we will end up back in Charleston,' he said.

LaRue filed the case in 2004 in federal court in Charleston, where DeWolff Boberg was incorporated and once had an office. The firm is now based in Dallas.

Tom Gies, attorney for DeWolff Boberg, said the firm was disappointed in Wednesday's ruling but is confident that it ultimately will prevail against its former employee.

"The opinion in no way suggests that our clients engaged in any misconduct," Gies said. "We look forward to having our position vindicated in the lower courts."

At issue in the LaRue case is the Employee Retirement Income Security Act, or ERISA, a federal law passed in 1974 to regulate worker benefits. In the past, courts have ruled that individuals cannot sue their employers over retirement-plan losses.

Justice John Paul Stevens, writing in his opinion for the Supreme Court, said times have changed. "Defined contribution plans dominate the retirement plan scene today," he wrote.

Unlike traditional pensions that pay out defined benefits, the 401(k) concept has exploded in number in the past two decades. Funded with pretax dollars, the plans leave major investment decisions largely up to employees.

The Bush administration argued in support of LaRue, saying the appeals court ruling barring his lawsuit would leave 401(k) participants without a meaningful remedy from any federal, state or local court when plan administrators breach their duties.

Employer groups supported DeWolff Boberg. They argued that ERISA is aimed at encouraging employers to set up pension plans but does not allow individuals to file lawsuits.

Gies predicted that the 9-0 decision would unleash a wave of ERISA-related litigation. He said business owners "can expect a variety of claims brought by 401(k) plan participants who seek to recover alleged losses to their individual accounts," including cases involving simple mistakes.

Chip Hardy, a principal with PrimeTrust Advisors, a South Carolina-based retirement planning consultant, said costly 401(k) errors by plan administrators "are few and far between."

Even so, the high court's ruling should put employers and employees on notice, he said.

"It's going to cause employers who are ultimately the fiduciaries to these plans to really review their administrative procedures and processes more carefully," he said.

Also, Hardy said, the court's decision is a call for retirement savers to be more diligent about the activity in their 401(k) plans. But he also cautioned that workers must be able to distinguish between standard market dips and negligence.

"I hope it doesn't open up a rash of frivolous lawsuits of employees who think just because their accounts went down, it's somebody else's fault," he said.

The Associated Press contributed to this report.