J.C. Penney agrees to pay $4.5 million to settle 401(k) suit

Plaintiffs had alleged company was imprudent in continuing to offer company stock as an investment option after it had declined in value

Jan 6, 2017 @ 2:03 pm

By Greg Iacurci

Department-store chain J.C. Penney is poised to pay $4.5 million to settle allegations over company stock in the firm's 401(k) plan, following a district court judge's preliminary approval of the settlement.

Participants in the company's 401(k) plan filed a lawsuit, Ramirez v. J.C. Penney Corp., in 2014 after allegedly losing hundreds of millions of dollars in aggregate due to a decline in the price of the company's stock.

The plaintiffs claimed plan fiduciaries knew the company stock, which was offered as an investment option, was an imprudent investment because it was artificially inflated in value, and therefore breached the company's fiduciary duties.

The plan held roughly $514 million in the J.C. Penney Common Stock Fund around December 2011, roughly 15% of the $3.5 billion in plan assets at that time, according to the original complaint. In November 2011, the stock price was $31 per share, but declined to $9 per share as of September 2013.

Joey Thomas, a J.C. Penney spokesman, declined comment on the lawsuit. Jacob Zamansky, founder of an eponymous law firm representing plaintiffs, didn't respond to a request for comment.

More than 300 such stock-drop lawsuits have been filed within the past 15 or so years, when they first began to emerge, and many have been settled, according to Marcia Wagner, principal of The Wagner Law Group. The median settlement in such cases is around $6 million, she said.

A 2014 Supreme Court ruling in a stock-drop case, Fifth Third Bancorp v. Dudenhoeffer, made it more difficult to mount such lawsuits, according to Ms. Wagner.

“The Supreme Court now requires that a viable complaint must allege that a prudent fiduciary could not have concluded that actions disclosing the company's difficulties and divesting plan holdings in company stock would do the plan more harm than good,” Ms. Wagner said.

Roughly 18% of 401(k) plans offer company stock as an investment option, according to the Plan Sponsor Council of America.

That percentage has been trending downward, however. The consulting firm Callan Associates has witnessed a nearly 10 percentage point drop since 2009 in the number of defined contribution plans offering company stock, for example.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video

Events

How 401(k) advisers can use 'centers of influence' to grow their business

Leveraging relationships with accounting, benefits, and property and casualty insurance firms can help deliver new business leads for retirement plan advisers.

Latest news & opinion

SEC advice rule may give RIAs leg up over broker-dealers

Experts say advisers will be able to point to their role as fiduciaries as a differentiator in the advice market.

Brokers accept proposed SEC rule on who can call themselves an adviser

Some say the rule will clear up investor confusion, but others say the SEC didn't go far enough.

SEC advice rule: Here's what you need to know

We sifted through the nearly 1,000-page proposal and picked out some of the most important points.

Cadaret Grant acquired by private-equity-backed Atria

75-year-old owner Arthur Grant positions the IBD for the 'next 33 years.'

SEC advice rule seeks to tighten reins on brokers

The proposed rule puts new restrictions on brokers, but it is still unclear how strongly the SEC is clamping down.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print