When a 401K Isn’t Properly Managed, that violates the Employee Retirement Income Security Act. Sometimes even a bank can screw this up resulting in a significant settlement for its employees.
ERISA Lawsuit Garners a $3 Million Settlement
Detroit, MI, September 8, 2013. By Heidi Turner. From lawyersandsettlements.com.
An ERISA lawsuit alleging breach of fiduciary duty regarding the overseeing of an ERISA plan has resulted in a $3 million settlement.
The lawsuit alleged violations of the Employee Retirement Income Security Act (ERISA) based on how a bank managed its employee 401(k) plan.
ERISA Lawsuit Results in Million SettlementAccording to grbj (Grand Rapids Business Journal; 9/4/13), the lawsuit was filed against Flagstar Bank and alleged the bank breached its fiduciary duty to act in the best interest of its employees in its management of the 401(k) plan. Specifically, the lawsuit alleged that Flagstar allowed the 401(k) plan to invest in Flagstar stock even though the investment was imprudent.
Additionally, the plaintiffs argued that the defendants failed to “provide complete and accurate information to Plan participants regarding the Company’[s] financial condition and the prudence of investing in company stock,” according to court documents. Furthermore, the plaintiffs claimed that plan fiduciaries “knew or should have known that investing in Flagstar stock was imprudent because of Flagstar’s significant credit risks, and uncertainty about how devastating the recession would get, which made Flagstar stock ‘a particularly risky and imprudent investment for the Plan’s participants’ retirement savings.”
The plaintiffs claimed that fiduciaries overseeing the plan knew Flagstar was exposed to credit risk in certain areas of the US and that Flagstar was not profitable. Those risks allegedly resulted in Flagstar stock dropping from $14.95 per share at the start of the class period to $.0274 per share on August 13, 2010, a drop of 95 percent over the class period, plaintiffs argue.
The lawsuit also alleged that the defendants filed documents with the Securities and Exchange Commission (SEC) that contained “numerous material misrepresentations.”
Plaintiffs and defendants have now agreed to settle the lawsuit for $3 million, which will be paid to the plan, minus fees and expenses. The settlement covers current and former participants and beneficiaries of the Flagstar Bank 401(k) plan whose individual accounts held shares of Flagstar common stock from December 31, 2006 to May 2, 2013. In agreeing to the settlement, Flagstar did not admit liability or charges of wrongdoing.
The lawsuit is case No: 2:10-cv-10610, in the US District Court, Eastern District of Michigan, Southern Division.