A class action brought against Total Petrochemicals alleges that the company breached its fiduciary duties as administrator of its employee 401(k) fund, because the company is requiring employee participants to sell company stock in the fund back to the company at a loss. The lawsuit is brought under the rules of the Employee Retirement Income Security Act (ERISA).
The class includes all persons who were participants in or beneficiaries of the company’s 401(k) plan, from January 1, 2014 to the present, whose accounts included investments in the company’s stock.
The complaint alleges that Total Petrochemicals’ plan is an employee pension benefit plan, an eligible individual account plan, and a qualified case or deferred arrangement within the meanings of ERISA.
According to the complaint, participants were permitted to contribute from 1-30% of their eligible base pay to the plan and to invest this in various options available under the plan, which included both diversified mutual funds and options for investing in company stock. Total Petrochemicals matched these contributions at certain percentages by making contributions of company stock.
ERISA requires that plans provide for one or more fiduciaries, and the complaint alleges that Total Petrochemicals is the fiduciary for its plan, because it has chosen to administer the plan itself, without hiring outside service providers.
According to the complaint, the company is now requiring that participants divest themselves of company stock investments by December 31, 2015, which will result in substantial losses. The complaint claims that this violates the duties required of a fiduciary.
ERISA imposes several duties on a fiduciary. First, it requires loyalty—that is, the duty to discharge his duties to the plan solely in the interests of the participants. Second, it requires that fiduciaries follow the Prudent Man Rule—that is, that they use “care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man…would use…” in a similar situation. Third, a fiduciary is liable not only for his own breaches but must also use reasonable care to prevent co-fiduciaries from breaching their duties, and must attempt to remedy any breach of theirs. Fourth, a fiduciary’s duties of loyalty and prudence include the duty to disclose and inform, because of the disparity that may exist between the knowledge and abilities of the fiduciary and those of the participants in the plan. The duties of loyalty and prudence also require fiduciaries to monitor the merits of the plan’s investment alternatives and to avoid conflicts of interest.
The complaint alleges that Total Petrochemicals violated all of these duties in its administration of its retirement plan and in requiring plan participants to see company stock investments at a loss. The complaint therefore requests that Total Petrochemicals make cash payments to make good the losses of plan participants and take steps to remedy the alleged breaches of its duties.