Compliance

Sears Faces ERISA Suit Over Holding Company Stock in Retirement Plan

The complaint offers alternative actions Sears could have taken once it realized its stock was an imprudent retirement plan investment.

By Rebecca Moore editors@strategic-i.com | July 20, 2017
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A participant in the Sears Holdings Savings Plan has filed a proposed Employee Retirement Income Security Act (ERISA) class action lawsuit alleging Sears continued to hold company stock in its retirement plan when it was no longer prudent to do so.

According to the complaint, Sears Holdings Corporation has not had a profitable year since 2011, and has not had a profitable quarter from business operations since 2010. Sears has a net loss attributable to shareholders of $10.196 billion since year-end 2010. The complaint contends Sears faces inevitable bankruptcy.

“This case is about the Defendants’ abject failure, as Plan fiduciaries, to protect the interests of the Participants in violation of Defendants’ legal obligations under ERISA, including ignoring the excessive risk imposed on Participants by the rise in the debt-equity ratio of Sears, and other objective factors that imposed risks to the Fund by Defendants’ actions and inactions,” the lawsuit says.

It alleges that even if the plan purportedly required that Sears Stock be offered, the plan’s fiduciaries were obligated by law to disregard that directive once it became clear company stock was no longer a prudent investment for the plan.

"The thrust of the plaintiff’s allegations under Counts I (breach of ERISA’s duty of prudence) and II (breach of ERISA’s duty of loyalty) is that defendants allowed the investment of the plan’s assets in Sears Stock throughout the class period (July 14, 2014, to the present) even after they knew or should have known, through publicly available information, that Sears was in extremely poor financial condition and faced equally poor prospects indicating that it had experienced a sea-change in its risk profile and its prospects, making it an imprudent retirement plan investment vehicle."

The complaint says defendants were empowered and obliged by ERISA to remove Sears Stock from the plan, yet they failed to do so, or to act in any way to protect the interests of the plan or its participants, until it was too late to make any material difference, in violation of ERISA. “Freezing purchases of the Fund at year end 2016 was too little, too late, to protect a great deal of Participants’ retirement savings,” the lawsuit says.

NEXT: What Sears should have done