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401(k)

Definition

A type of savings account made possible by federal law.  By creating a financial plan under 26 U.S.C. 401(k), employers can help their workers save for retirement while reducing taxable income.  Workers can choose to deposit part of their earnings into a 401(k) account on a pre-tax basis.  Furthermore, interest earned on money in a 401(k) account is never taxed before funds are withdrawn.

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Samantha works for a software company.  The company has a qualifying 401(k) plan that complies with ERISA and the Internal Revenue Code.  This company's plan gives every employee an option to enroll after six months of employment. 

Samantha joined the plan 20 years ago and deposited 10% of every paycheck into her individual 401(k) account.  Under the plan's "matching" provision, Samantha's company matched every dollar she deposited with a dollar of its own. 

Samantha used to instruct her plan's administrator to invest the money in her account into an aggressive high-risk/high-reward mutual fund.  Now that Samantha is nearing retirement, she has instructed her plan administrator to invest her account balance into safer low-risk/slow-growth plan.  Samantha is relying on her 401(k) plan for financial stability after she retires.

"Petitioner filed this action in 2004 against his former employer, DeWolff, Boberg & Associates (DeWolff), and the ERISA-regulated 401(k) retirement savings plan administered by DeWolff (Plan).  The Plan permits participants to direct the investment of their contributions in accordance with specified procedures and requirements.  Petitioner alleged that in 2001 and 2002 he directed DeWolff to make certain changes to the investments in his individual account, but DeWolff never carried out these directions.

"We . . . hold that although [29 U.S.C. § 1132(a)(2)] does not provide a remedy for individual injuries distinct from plan injuries, that provision does authorize recovery for fiduciary breaches that impair the value of plan assets in a participant's individual account."

LaRue v. DeWolff, Boberg & Assocs., Inc., 128 S. Ct. 1020, 1022, 1026 (2008).