State:
Free Special Resources
Get Your FREE Special Report. Download Any One Of These FREE Special Resources, Instantly!
Featured Special Report
Claim Your Free Cost Per Hire Calculator
This handy calculator lets you plug in your expenses for recruiting, benefits, salaries, and more.

Graphs automatically generate to show you your annual cost per hire and a breakdown of where you are spending the most money.

Download Now!
March 13, 2009
Stock Price Plummets and Plan Invests Anyway?
A New Jersey company spun off part of its operations into a new entity in 2000. The new firm, like its predecessor, wrote its ERISA pension plans to guarantee every participant the chance to invest in company stock. In like manner, administrators invested some plan assets in that stock. When the stock’s price dropped dramatically, a plan participant sued, charging administrators with irresponsibility.

What happened. “Weeks” was working for Lucent Technologies when it spun off Avaya in the fall of 2000, and he became an Avaya employee. Because of lack of demand for their products, both companies encountered increasing financial difficulties in the years just after the spinoff. For example, Avaya’s stock price was $22.88 per share right after the spinoff, but by nearly 2 years later, it had plummeted to $1.15 per share.

In his lawsuit, Weeks charged on behalf of himself and all other plan participants in both companies during that time, that the administrators in both companies should have stopped investing in the damaged stock when the financial problems hit. A federal district court judge heard Weeks’s class action suit and dismissed all plaintiffs’ charges. Weeks appealed to the 3rd Circuit, which covers Delaware, New Jersey, and Pennsylvania.

What the court said. Weeks argued that if plan administrators had investigated Avaya stock, they would have realized that “Avaya securities and the Avaya Stock Fund … were not prudent investment options for the Plans’ assets, participant contributions, or Avaya’s matching contributions.” Appellate judges turned to their 2005 ruling in a similar case, involving the pension plan and stock of a different company. There, the company’s stock had dropped to less than $.25 per share, and the firm had soon after that entered into bankruptcy. Judges decided the plaintiff might have presented enough facts to prove “that the fiduciary abused its discretion by investing in employer securities,” and ordered reconsideration of her case.

However, they had ruled in a 2007 case also involving Avaya that plaintiffs had definitely not proven that fiduciaries were reckless to continue investing in company stock. On that basis, Weeks’s suit against Avaya failed again, as did his suit against Lucent, but for a different reason: That the same class action claims had been filed earlier and Lucent had settled with the plaintiffs. Ward et al. v. Avaya, U.S. Court of Appeals for the 3rd Circuit, No. 07-3246, unpublished (2008).

Point to remember: Far from declaring bankruptcy, Avaya posted profits in 2003 and 2004, with its stock price rising to between $12 and $16 per share in those years.

For a Limited Time receive a FREE Compensation Market Analysis Report! Find out how much you should be paying to attract and retain the best applicants and employees, with customized information for your industry, location, and job. Get Your Report Now!
Featured Free Resource:
Cost Per Hire Calculator
Twitter  Facebook  Linked In
Follow Us
HCMNPWS1
Copyright © 2024 Business & Legal Resources. All rights reserved. 800-727-5257
This document was published on https://Compensation.BLR.com
Document URL: https://compensation.blr.com/Compensation-news/Retirement-Planning/ERISA/Stock-Price-Plummets-and-Plan-Invests-Anyway