Double Trouble With Second Stock Drop Suit

By Nevin Adams • July 20, 2016 • 0 Comments
What’s worse than one class action lawsuit alleging a fiduciary breach?

Why, a second lawsuit, of course — this one alleging that plan fiduciaries failed to fulfill their fiduciary obligations under ERISA by (different) participants in Target Corp.’s 401(k) plan. The suit was filed in the same venue (the U.S. District Court for the District of Minnesota) as one filed last week by a different plan participant.

That said, the charges levelled against the plan, and the fact pattern underlying the alleged breach, were nearly identical.

In Simmons v. Target Corp. (D. Minn., No. 0:16-cv-02421), filed July 15, the plaintiffs filed a proposed class action against the company for allegedly breaching its ERISA fiduciary duties by failing to remove Target stock from the plan.

As did the previous suit, this one claims that during the period in question, even as the plan continued to invest in Target stock, the company made a series of reassuring statements about Target’s new Canadian stores and operations, though those operations were having a lot of trouble, and that thus the value of Target stock was “artificially inflated,” “making it an imprudent retirement investment for the Plan given its purpose of helping their Participants save for retirement.”

To ameliorate the impact, the suit claims the plan fiduciaries could have:

  • Directed that all company and plan participant contributions to the company stock fund be held in cash or some other short-term investment rather than be used to purchase Target stock.

  • Closed the company stock itself to further contributions and directed that contributions be diverted from company stock into prudent investment options based upon the participants’ instructions or, if there were no such instructions, the plan’s default investment option.

  • Disclosed (or caused others to disclose) Target’s true problems with its Canadian segment so that Target stock would trade at a fair value.

Additionally, this suit — as did the one previously filed — says that the plan fiduciaries could have sought guidance from the DOL or SEC as to what they should have done, resigned as plan fiduciaries to the extent they could not act loyally and prudently; and/or retained outside experts to serve either as advisors or as independent fiduciaries specifically for the fund — which, of course, they eventually did, as well as changing the plan’s default investment option.

The participants allege that in 2013 and 2014, the plan bought more than $628 million in company stock. The plaintiffs seek to recover the financial losses allegedly suffered by the plan as a result of the diminution in value of Target stock invested in the plan during 2013 and 2014. They also seek to restore to the plan funds that participants would have received if the plan’s assets had been invested prudently.