Another participant has filed a lawsuit against Sears Holdings Corporation over its continued offering of company stock in its retirement plans after disclosures that the company was not doing well financially.
However, unlike the first lawsuit filed, this one was filed not only on behalf of the Sears Holdings Savings Plan, but also the Sears Holdings Puerto Rico Savings Plan and their participants and beneficiaries.
As with the lawsuit filed in July, the new complaint says the defendants breached the Employee Retirement Income Security Act (ERISA) fiduciary duties they owed to the savings plans and the participants by failing to employ a prudent process with regard to monitoring the performance of the Sears Holdings Corporation Stock Fund and retaining that fund as an investment option under the savings plans, when a reasonable fiduciary would have done otherwise.
Specifically, the defendants permitted the savings plans to continue to offer the Sears Stock Fund as an investment option to participants even after they knew or should have known that during the relevant period—between May 22, 2014, and the present—that the Sears Stock Fund was a poorly performing investment option, continually failing, to meet its stated performance benchmark; there was no adequate process in place to monitor the continued prudence of including the Sears Stock Fund in the savings plans’ investment lineup; and the fiduciaries were not properly investigating the prudence of continuing to hold and invest the savings plans’ assets in the Sears Stock Fund in the face of well-reported dire circumstances facing the company.
The complaint suggests that rather than waiting until January 1, 2017, when Sears stock already lost tremendous value to close the Sears Stock Fund to new investments, the defendants could have taken numerous steps with regard to the savings plans’ assets invested in Sears stock to fulfill their fiduciary duties to the plans and participants. The complaint says none of these actions would have implicated, let alone been in violation of, the federal securities laws or any other laws.
Steps the complaint suggests fiduciaries could have taken include:
- Investigating and monitoring the performance of the Sears Stock Fund, and assessed the appropriateness of the savings Pplans’ investment in that fund in light of Sears’ continuously deteriorating business prospects and liquidity constraints;
- Timely closing the Sears Stock Fund to new investments prior to the start of the relevant period instead of waiting until January 1, 2017, to do so, by which time, the savings plans had already sustained massive losses;
- Introducing Target Retirement Funds prior to March 1, 2017, and prior to the closure of the stock fund to prevent the losses to the savings plans that resulted from the defendants’ imprudent conduct during the relevant period;
- Undertaking an orderly divestment of the Sears Stock Fund held by the savings plans, and assisting participants with redirecting the proceeds into other investment options available to them; and
- Seeking guidance from the Department of Labor (DOL) or Securities and Exchange Commission (SEC) as to what they should have done, resigning as fiduciaries of the savings plans to the extent they could not act loyally and prudently, and/or retaining outside experts to serve either as advisers or as independent fiduciaries specifically for the Sears Stock Fund.
The lawsuit seeks to restore losses to the plan participants incurred because of the defendants’ breaches of fiduciary duties.