Compliance January 6, 2009

New Company Stock Suit Filed against Boston Scientific

A former employee of Boston Scientific Corp., who dropped out of a previous lawsuit before it was dismissed, has filed a new lawsuit alleging the company breached its fiduciary duties by offering company stock as a retirement plan investment option.
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Former employee Robert Hochstadtvwas originally a lead plaintiff in the previous suit along with Douglas Fletcher and Michael Lowe, but he dropped out of the suit before a review by U.S. District Judge Joseph Tauro of the U.S. District Court for the District of Massachusetts. In dismissing the previous case, Tauro ruled that because Fletcher and Lowe sold more stock than they purchased during the time period when they claimed the company’s stock price was artificially inflated, they likely were not financially injured by any potential misdeed by the employer and therefore, lacked constitutional standing (see “Boston Scientific Wins Stock Drop Lawsuit’).

Hochstadt was joined in the new suit by Edward Hazelrig, Jr., in filing the suit on behalf of themselves, the plan, and similarly situated plan participants and beneficiaries. Like the previous case, the new suit claims plan fiduciaries breached their duties under the Employee Retirement Income Security Act (ERISA) by continuing to offer company stock as an investment option from the period May 7, 2004, to January 26, 2006, when the former employees claim the stock price was artificially inflated in light of company problems. The stock price went from a high of $45 per share during the class period to $20 per share at the end of the class period, the complaint said.

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According to the complaint the corporate problems that should have caused the defendants to know the stock price was artificially inflated included:

  • information emerged publicly during 2004 to 2006 about safety concerns over Boston Scientific’s stent products;
  • a recall of stents in 1998;
  • a Department of Justice investigation into the stent recall;
  • widespread problems in Boston Scientific’s manufacturing facilities.
  • The suit seeks, among other things, restitution for the plan and affected participants.
In Practice January 6, 2009

Questions 403(b) Participants Might Ask

As 403(b) plan sponsors and advisers have prepared for new Internal Revenue Services regulations in effect as of January 1, no doubt communications with participants about the new environment have begun, but have you told them everything?
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Aside from the list of providers they are offered in their plans and new procedures for loan and distribution requests, participants may have many more questions to assure them that the plan and their assets are being administered appropriately and about how best to take advantage of this retirement savings vehicle.

Security Benefit, a provider of consulting and administrative services, has come up with a list of questions you should be prepared to answer:

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  • What has the school administration done to prepare for the January 1 compliance deadline?
  • How have the administration and teachers’ associations worked together on this issue?
  • Was our plan compliant by the IRS deadline? If not, what impact does that have on me and my retirement assets?
  • What changes should I expect and when will I get more information?
  • Do I have to transfer my current assets to a new provider?
  • What are the fees and expenses of the new providers?
  • Who will help me in making these changes and what kind of service can I expect?
  • How should I decide which provider to select?

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