Dallas Fort Worth Texas employers should watch closely that they don't become liable for offering 401K employee benefits to their employees.  In an unanimous ruling on February 21, LaRue vs. DeWolff Boberg and Associates, the Supreme Court ruled that employers can be held liable if employees lose money in their 401K employee benefits plan.  The Supreme Court ruled that LaRue, who lives in Texas, could sue to recover losses as well as profits he could have earned on that money.

The court's rationale in the ruling apparently was that employers are the ultimately fiduciaries of their 401K employee benefits plan, and that they must take their responsibilities seriously to make sure that plan administrative processes and procedures protect their employees' investments.  The ruling delineates losses due to negligence on the part of the employer as opposed to market declines.  But it may well take several followup court rulings on future lawsuits to make it clear as mud to determine when employers are negligent and when they are not.

Other recent court rulings have also made 401K plans legal quagmires for financial advisors.  The time, administrative cost and  added legal risks of 401K plans make them much less rewarding for employee benefits advisors to recommend to their client companies.  What advisor in his or her right mind wants to recommend a retirement plan that could subject their clients as well as themselves to an expensive lawsuit from a disgruntled employee?

As DFW and Texas employers slice up their employee benefits budget to attract and retain valuable employees, they must decide where they spend their benefits dollars.  As it is, the double digit inflationary increases in group health insurance plans and workers compensation costs aren't going to diminish, no matter who is in the White House or Governor's Mansioon.  A change in parties controlling the White House and Congress could lead to a less business-friendly Supreme Court, and possibly increase the likelihood that lawyers will take up these type of cases.

The fallout from the ruling: Fewer advisors recommending 401K plans to their clients and fewer companies offering 401k plans to their employees.  What employee benefit advisor wants to recommend an employee benefit to their client companies that could get their client, and themself, tangled up in a court test case lawsuit?

The 401K is one of very few federal programs where the government gives average employed Americans a tax benefit to encourage saving for retirement.  And it is the only federal program we can think of where the average American working person actually gets paid by their employer to learn, ask questions and get one on one professional financial education and get sound advice from a financial advisor during the open enrollment period and the periodic 401K plan update meetings conducted by the advisor.

At a time when federal Medicare and Medicaid programs are close to insovency and the cost of healthcare at retirement and the cost of long term care is astronomical and climbing, one would think that any progam that encourages and educates Americans on the need for saving would be good public policy.

Unfortunately, the LaRue ruling puts a wet blanket on 401K plans, and in so doing, discourages Dallas and Texas employers from providing a great employee benefits program that gives employees basic financial education and an incentive to save for their retirement.