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Workers sue over losses on company stock Investors in some 401(k) plans say they were misled
By Christine Dugas USA TODAY
The stock market downturn is drawing attention to the company stock stuffed into 401(k) plans -- prompting some workers to sue employers over steep losses.
Nearly one-third of 401(k) assets were invested in company stock as of July 31, according to the Hewitt 401(k) index, based on data from 1.5 million plan participants. Such large concentrations can expose investors to big losses.
Some employees are taking action:
* Employees at Lucent Technologies sued last month over company stock losses in their retirement plan. The lawsuit alleges that Lucent was aware of financial problems that made its stock inappropriate for 401(k) plan participants.
About 31% of Lucent's plan assets are in its stock, according to industry newsletter DC Plan Investing. It ranked Lucent the fourth-worst-performing company stock in 401(k) plans in May. The stock closed Friday at $6.34. Its 52-week high: $45.18.
Lucent says the lawsuit is without merit. Charges are similar to other shareholder lawsuits, which allege Lucent misled shareholders and failed to warn of revenue shortfalls.
* A class-action lawsuit is pending against Ikon Office Solutions, a Valley Forge, Pa., provider of copier and printing systems. It charges Ikon violated its fiduciary duty by putting its stock into the 401(k) plan.
In 1999, Ikon agreed to pay $111 million to settle separate securities fraud lawsuits that alleged it misled investors about internal problems. Ikon's stock closed at $7.85 on Friday, down from a 5-year high of $46.63.
As market woes persist, such lawsuits may become more common. But because employees lose money doesn't mean they have a claim.
Some experts say it may be difficult for workers to prevail.
''One way a company can get into trouble is if it possesses information about a problem that makes the stock an inappropriate investment, but they do nothing about it,'' says Lynn Sarko, an attorney at Keller Rohrback in Seattle. The firm is representing Lucent employees.
Some companies are taking steps to limit exposure:
* A recent study by Fidelity Investments found that 7% of 401(k) plans limit the percentage of stock in a participant's account. The most common limit is 25%.
* Federal-Mogul, an auto-parts maker based in Southfield, Mich., no longer makes matching contributions in company stock. And it barred participants from buying more company stock in the plan.
The steps stem from stock volatility related to pending asbestos liability claims, spokesman Jim Fisher says. The stock closed at $1.05 on Friday, down from a 52-week high of $11.75.
''Federal-Mogul may have raised the bar,'' says Nevin Adams of Plansponsor.com. ''People can point to their example and say, 'Why didn't you do that?' '' Front Page News Money Sports Life Tech Weather Shop Terms of service Privacy Policy How to advertise About us © Copyright 2001 USA TODAY, a division of Gannett Co. Inc.