A Victory for Workers

The Supreme Court allows employees to sue their retirement plans.

THE SUPREME Court during recent terms has relied on cramped legal analysis to deny fairness to workers and criminal defendants in several notable cases. Yesterday, the justices issued a decision remarkable for the fact that it was unanimous in handing victory to the proverbial "little guy."

The case involved James LaRue, who sued the administrator of his 401(k) plan after that administrator apparently failed to follow Mr. LaRue's instructions and transfer money from one account to another, less volatile one. That failure cost Mr. LaRue $150,000, according to court records. A trial court and later the Richmond-based U.S. Court of Appeals for the 4th Circuit concluded that Supreme Court precedent barred Mr. LaRue from suing. The 4th Circuit cited a 23-year-old case in which the high court concluded that plaintiffs could not prevail unless they proved that losses were suffered by an "entire" retirement plan. At the time of that decision, in 1985, most employees relied on a single pension plan administered by their employers.

In its unanimous decision in LaRue v. DeWolff, Boberg & Associates, the Supreme Court concluded that the impulse to protect "the 'entire plan' from fiduciary misconduct reflects the former landscape of employee benefit plans." "That landscape has changed," it said -- a recognition that 401(k) plans and other individual accounts are the dominant retirement instruments today. Justice John Paul Stevens and the four others who joined him, including Justice Samuel A. Alito Jr., found that individuals could prevail if they showed that a loss in their retirement account was because of an administrator's misconduct. That finding should not trigger a flood of litigation; a loss of value because of market forces would not be grounds for action.

Not all of the justices agreed with how Justice Stevens came to his conclusion. Justices Clarence Thomas and Antonin Scalia read the text of the federal law governing retirement funds to allow such lawsuits, regardless of the evolving "landscape." Chief Justice John G. Roberts Jr. and Justice Anthony M. Kennedy wondered whether another provision in the retirement law should govern Mr. LaRue's lawsuit. But all agreed on the central point about the right of individuals to bring their grievances to court when their hard-earned retirement funds are diminished by someone else's breach. It's refreshing when the law, logic and moral authority come into sync in such a case.