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This past February, the Supreme Court ruled in favor of James LaRue, a worker suing the administrators of his 401(k) pension plan on breach of fiduciary duties, Edelman, a financial planner, notes. LaRue claimed that DeWolff, Boberg & Associates, Inc. ignored LaRues instruction to change to more stable investments, eventually leading to depletion of his pension by approximately $150,000. The Supreme Court ruled that this was a breach of fiduciary duty under the Employee Retirement Income Security Act (ERISA).
Controversy over this case centered on whether LaRue was recovering remedies on an individual basis as the ERISA provides remedies only for entire plans, not for individuals. In this case, however, the Supreme Court ruled that LaRue was not suing on such matters but rather on a breach of fiduciary duties that impaired the value of his individual assets.
The outcome of this case has caused concern and uncertainty as many wonder what the long-term implications will be and how they will affect pensions, 401ks and the relationships between employees and administrators of mutual funds.
Investors pay an average fee of 3% for mutual funds in their 401(k)s. To illustrate the impact these charges have on long-term investments, the U.S. Government Accountability Office reported last year that a 1% increase can lower future account balances by approximately 17%. Certainly, thats gotten the attention of investors - and is why Edelman recommends exchange-traded funds to his clients, as they charge 90% less.