Compliance September 2, 2009

Bank Hit with Stock-Drop Charges

Montgomery, Alabama-based Colonial Bank, closed by authorities in August, has been hit with a stock-drop lawsuit by a retirement plan participant.

Reported by

Lora McKay claims the bank violated its Employee Retirement Income Security Act (ERISA) fiduciary responsibilities by having company stock as a plan option despite suffering major losses from the nation’s mortgage crisis. The suit charges that because of the fiduciary breach, bank employees lost $50 million in retirement assets after the bank’s stock gave up 99.7% of its value.

McKay alleges the ERISA breach took place from April 18, 2007, to the present and requests that the suit be certified as a class action to represent other employees with company stock investments.

McKay charged the stock was artificially inflated during the named period because the bank:

  • engaged in high-risk loan origination, mortgage warehouse lending, and investment practices;
  • lacked adequate internal and financial controls;
  • grossly mismanaged risk and liquidity;
  • engaged in improper accounting practices; and
  • did not adequately set up a reserve for loan losses.

The complaint asserts that despite the fiduciaries’ knowledge of Colonial Bank’s risky lending practices, they continued to present a positive outlook regarding the bank’s stock as an investment for employees.

The case is McKay v. Colonial BancGroup Inc., M.D. Ala., No. 2:09-cv-00806.

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Products September 2, 2009

USI Offers Managed Accounts through Morningstar

Morningstar Associates, LLC, has announced that USI Consulting Group is now offering managed retirement accounts through Morningstar Retirement Manager.

Reported by

With Morningstar Retirement Manager, participants receive a personalized retirement strategy, including a retirement income goal assessment, recommended savings rate, and construction of an appropriate portfolio using the investments in the plan lineup, according to Morningstar. Participants who enroll in the managed account service will also receive professional asset management, ongoing account monitoring, and quarterly progress reports to help them track their advancement toward their goals.

Morningstar said discretionary managed accounts provide a solution for participants who are not sure how to choose investments or monitor their retirement accounts on their own. Discretionary managed accounts may also be used as a qualified default investment alternative (QDIA) under the provisions of the Pension Protection Act of 2006, Morningstar pointed out.

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