James LaRue, an employee with retirement benefits under his company's 401(k) plan, sued the plan administrator alleging the administrator failed to carry out LaRue's investment instructions, resulting in a loss of $150,000 to his account. The lower courts ruled that LaRue's suit was invalid because the Employee Retirement Income Security Act (ERISA) only allows suits on behalf of the plan and not for individual recoveries.
The Supreme Court ruled 2/20/08 that ERISA does allow individuals to sue plan administrators even though the only damage alleged is to the individual's own account. The statute provides a remedy for individuals to sue administrators of defined benefit plans (pensions) for fiduciary breaches that affect the ability of the plan to pay out defined benefits, and now this ruling holds that the statute provides a remedy for individuals to sue for breaches that affect the payment of their individual benefits in defined contribution plans. The Court did not address the issue whether ERISA allows suits for money damages under a provision that limits remedies to "equitable relief."
This decision means that 401(k) plan administrators must exercise reasonable care as fiduciaries when carrying out their obligations on behalf of plan beneficiaries. They will still be protected against suits arising from investment decisions made by beneficiaries, but they have to carry out those investment directions according to the provisions in the plan.