American workers can sue the manager of their 401(k) retirement plan if the manager fails to properly follow investment instructions.

The U.S. Supreme Court Feb. 20 ruled in favor of a worker who said his retirement account was deprived of $150,000 in earnings because the manager of his 401(k) plan ignored his instructions, keeping the money in less lucrative investments.

The Supreme Court said in a 7-to-2 decision the Employee Retirement Income Security Act of 1974 (ERISA) authorizes retirement account holders such as James LaRue to sue to recover investment losses when retirement plan managers breach their fiduciary duty.

"The principal statutory duties imposed on fiduciaries by [ERISA] relate to the proper management, administration, and investment of fund assets, with an eye toward ensuring that the benefits authorized by the plan are ultimately paid to participants and beneficiaries," Justice John Paul Stevens wrote in an eight-page opinion. "The misconduct alleged by [LaRue] in this case falls squarely within that category."

The decision helps identify remedies available to retirees and prospective retirees who face fiduciary misconduct related to their 401(k) and other retirement investments accounts, which have replaced traditional pension plans at most companies.

An estimated 50 million private-sector employees have invested $5.5 trillion in retirement plans regulated by the federal government under ERISA.

Last week’s decision stems from a lawsuit filed by LaRue against his former employer, the management consulting firm DeWolff, Boberg & Associates, alleging the company had breached its fiduciary duty to administer LaRue’s 401(k) retirement account in accord with his instructions.

Under the rules of the company’s retirement plan, employees were permitted to select how they wanted the money in their 401(k) invested. LaRue claimed account managers ignored his instructions. The company responded that LaRue’s instructions weren’t as specific and clear as he maintains.

A federal judge and a panel of the Fourth U.S. Circuit Court of Appeals agreed with the company and threw out LaRue’s lawsuit.

In its ruling last week, the high court said ERISA restrictions do not limit suits related to 401(k) accounts.