Supreme Court case could offer employees grounds to sue for 401(k) mismanagement

May provide a clearer path for employees to recoup losses

Given the turmoil of the financial crisis, many people are more concerned, or at least more aware, of the contributions they make to their 401(k) accounts. Now the Supreme Court is reviewing a case that could provide grounds for employees to suit employers over poor management of these types of investment plans.

The Supreme Court has agreed to hear an appeal brought by Fifth Third Bancorp, a Cincinnati-based financial firm. The firm is defending against a class-action lawsuit that claims it continued to allow employees to invest in company stock, even after it became obvious that it was risky to do so. The plaintiffs say that in doing so Fifth Third violated federal law that says that an employer must be “diligent” in its management of retirement funds.

The class, which is comprised of Fifth Third employees, claims that the firm should have warned employees that investing in company was risky, especially given its exposure to subprime loans. During the 2 year period covered by the lawsuit, the firms stock dropped 74 percent, the Wall Street Journal reports.

For its part, Fifth Third says that claims from the class are unreasonable, and that predicting an event as cataclysmic as the financial crisis would have been impossible.

Fifth Third offered multiple options of investment for their employees, including one that was made up of a substantial investment in its own stock. In a previous ruling, a Cincinnati appeals court said that the class only had to prove that Fifth Third acted in an irresponsible manner by showing that a “reasonable” investment administrator would have acted differently.

This is not the first time that this issue has been brought to the SCOTUS, but the court declined to review similar cases involving Citigroup Inc., McGraw-Hill and JPMorgan & Chase & Co.  

The Supreme Court ruling should offer some level of insight into how to handle these types of suits. The court will hear oral arguments in March and a ruling should come by the summer of 2014.

 

For more on recent Supreme Court developments check out these stories:

SCOTUS declines to arbitrate web retailer tax collection debate

Pending SCOTUS ruling could change the face of securities litigation

Justice Kennedy denies emergency appeal from Prop 8 supporters

Supreme Court strikes down DOMA

Contributing Author

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Chris DiMarco

Chris DiMarco, Associate Editor of InsideCounsel magazine, has a background in multimedia production with previous involvement in projects in which he developed and created content...

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