Mutual Fund ERISA: Individuals Can Sue for Losses

Washington, DCA landmark Supreme Court decision that could have wide-ranging implication for mutual fund ERISA lawsuits was handed down earlier this week.

The case involved a man who argued that the administrators of his pension plan failed to follow his investment directions, resulting in a loss of $150,000. He also argued that the administrator's actions amounted to a breach of fiduciary duty under ERISA. The Supreme Court decided that the man could sue his employer for losses to his investment account.

The Supreme Court's decision means that individuals who are participants in 401(k) plans can file lawsuits alleging that their individual accounts were mismanaged. The court's decision, which was unanimous, rejected the respondent's claims that investors cannot sue to recover losses incurred by individual accounts. Essentially, this means that individuals can now sue for losses on individual accounts if their plan administrator has breached its fiduciary duty. It also means that employees can file lawsuits in situations where employers offer their own stock as an investment option, knowing that the share price is inflated and will fall.

In handing down his opinion, Justice John Paul Stevens wrote, "Fiduciary misconduct need not threaten the solvency of the entire plan to reduce benefits below the amount that participants would otherwise receive."

Approximately 50 million workers have more than $3 trillion invested in 401(k)s and other, similar retirement plans. According to the Los Angeles Times, this decision paves the way for new lawsuits, "including challenges to the fees that workers are charged to administer their savings plans."

Some investors are currently investigating the possibility of lawsuits against their employers, alleging their money is being improperly invested in their employers' own mutual funds. They claim that they are being charged fees that are too high and, with the amount of money invested in the mutual fund, they could negotiate with a money manager for lower fees. They argue that this is a breach of fiduciary duty because it puts the fiduciary's needs ahead of the investor's needs.

Fees associated with 401(k) plans can wind up costing investors a lot of money over the life of the investment. It is important that their money be invested with the lowest fees possible. The appropriate amount of money for a mutual fund to have is $30 million or less. More than $30 million gives investors the ability to negotiate lower fees with money managers, making a company's own mutual funds an inappropriate investment.

If your employer is a financial services company and your money has been improperly invested in your employer's own mutual fund, you may be eligible to file a lawsuit to recover fees paid for the mutual fund.