Heads up for HR: The Supreme Court has just given individual employees the green light to sue to recover losses in their 401(k) accounts.

Heres what happened: An employee in Houston had money in a 401(k) plan sponsored and administered by his employer. He asked the administrator to transfer the money from one mutual fund to another. The request was never honored, and as a result the man missed out on a $150,000 profit. He sued the company to recover the losses.

Two lower courts decided in favor of the company, ruling that the Employee Retirement Income Security Act (ERISA) only allows lawsuits on behalf of the plan as a whole, not on behalf of individual plan members. But the High Court broke with the established case law and ruled for the employee.

The reason? The way retirement funds are saved has changed a lot since ERISA was passed in 1974. Back then, a lot of companies offered pensions, and doled out money to retirees from one investment fund.

These days, most people put money in 401(k)s or other defined contribution plans. So employees have their own individual accounts, and can lose a lot of money individually, regardless how other people in the plan are doing.

So the Court said it was only logical to let individuals sue to recover those losses.

Cite: LaRue v. DeWolff, Boberg & Associates