March 6, 2008 12:00 am

401(k) Participants Can Sue Plan Administrators

When you invest your contributions to a 401(k) plan, you take a risk that you can make or lose money, depending upon your investment choices and market performance. The responsibility is yours and you cannot look to the plan or its plan administrators (fiduciaries) to make up any investment losses.

However, if you tell the plan administrators to do something and they fail act, which causes you to suffer a loss, you may be able to recover damages. The U.S. Supreme Court recently decided that a participant can sue the fiduciary for failing to follow his investment instructions. The participant had told the administrator to sell certain holdings of his; when they didn’t do this, his account balance dropped by about $150,000. He can sue to be “made whole” (recover his losses).

A unanimous court said that the law allows an individual participant to seek recovery from fiduciaries where their breach of fiduciary duty impaired the value of that participant’s account. The fiduciaries had argued that the law limited actions to breaches that impaired the value of the entire plan; the court rejected this narrow view.

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Tax Glossary

Ordinary loss

A loss other than a capital loss.

More terms