Compliance May 24, 2010

Stock Drop Settlement on the Table for Boston Scientific

There’s a potential settlement in sight for participants in a 401(k) stock drop suit.
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According to a press release from plaintiff lead co-counsels Harwood Feffer LLP and Milberg LLP, an $8.2 million cash settlement has been proposed for a class action involving participants in the Boston Scientific Corporation 401(k) Retirement Savings Plan at any point between May 7, 2004 and January 26, 2006, inclusive.   

According to the notice, plaintiffs’ law firms are “intending to move the Court to award attorneys’ fees from the Gross Settlement Fund in an amount not to exceed one-third (33⅓%) of the Gross Settlement Fund and for reimbursement of their expenses in the approximate amount of $475,000, plus interest on such expenses at the same rate as earned by the Settlement Fund.”  The settlement indicates that they are also “intending to move the Court to award a payment of up to $10,000 to Named Plaintiff Edward Hazelrig, Jr. for his representation of the Proposed Class” from the settlement fund.

Allegations Made 

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The settlement involved allegations made in the United States District Court for the District of Massachusetts, in Hochstadt, et al. v. Boston Scientific Corp.  In that case former employee Robert Hochstadt, who had been a lead plaintiff in another suit against the firm (along with Douglas Fletcher and Michael Lowe), but dropped out of the suit before a review by U.S. District Judge Joseph L. Tauro of the U.S. District Court for the District of Massachusetts resulted in a dismissal of that case (see Boston Scientific Wins Stock Drop Lawsuit ).

In dismissing the previous case, Judge 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

In the Hochstadt case, it had been alleged that 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, according to the complaint (see New Company Stock Suit Filed against Boston Scientific).

According to the notice, “a hearing will be held before the Honorable Douglas P. Woodlock in the John Joseph Moakley United States Courthouse, Courtroom 1, 1 Courthouse Way, Boston, Massachusetts 02210, at 2:30 p.m., on August 5, 2010 to determine whether the proposed settlement should be approved by the Court as fair, reasonable, and adequate, and to consider the proposed Plan of Allocation, the application of Plaintiffs’ Co-Lead Counsel for attorneys’ fees and reimbursement of expenses and the application for a case contribution award for the Named Plaintiff.”

The proposed settlement indicates that for active participants in the plan, their proportionate amount will be “allocated among the Participant’s investment options in accordance with the existing investment elections then in effect and treated thereafter for all purposes under the Plan as assets of the Plan properly credited to that Participant’s account,” noting that the participant may thereafter reallocate “his or her Final Individual Dollar Recovery if and as then permitted by the Plan”. 

For former participants “who withdrew their accounts after the beginning of the Class Period but before the Effective Date of the Settlement”, terms of the settlement say that the trustee of the Plan will establish an account for each former Plan Participant, and each former Participant will be notified of such account along with further instructions.”

A copy of the proposed settlement and related materials is available at http://www.gilardi.com/BostonScientificERISA/

Compliance May 24, 2010

Fee Disclosure Rides Along with Pension Relief

Apparently there’s more than pension fixes tucked away in that new jobs bill moving through the U.S. Congress.
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The American Jobs and Closing Tax Loopholes Act (H.R. 4213), expected to be considered by the House this week, also includes provisions regarding retirement plan fee disclosure; provisions that are based on the 401(k) Fair Disclosure and Pension Security Act, according to a statement by Congressman George Miller (D-California), who authored that legislation that was subsequently approved by the Education and Labor Committee that Miller chairs last year.

“Guaranteeing the disclosure of hidden 401(k) fees will give Americans a fighting chance to strengthen their retirement and increase our nation’s future economic security,” said Miller in a press release. “We need to ensure that 401(k)s are run in the best interests of accountholders, not for the sake of boosting Wall Street’s bottom line. I would like to thank Chairman Levin and Congressmen Rangel and Neal for working with the Education and Labor Committee on these important provisions.”

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The bill:,

  • Requires 401(k) service providers to disclose to employers all fees assessed against the participant’s account, broken down into three categories: plan administration and recordkeeping fees, investment management fees, and all other fees
  • Requires the U.S. Department of Labor to review compliance with new disclosure requirements and impose penalties for violations

The bill also requires that:

  • before enrollment, workers would receive information to help them understand  investment options by providing basic investment disclosures, including information on risk, return, and investment objectives
  • a worker’s quarterly statement list total contributions, earnings, closing account balance, net return, and all fees subtracted from the account
  • workers “receive clear information on the name, risk level, and investment objective of each available investment option before enrolling in a 401(k) plan”
  • fees be disclosed for each investment option the employee invests, expressed in dollars or as a percentage

The bill would also make what Miller described as “important, but modest adjustments to funding requirements so plan sponsors will not have to choose between making forced cash contributions, freezing plans or cutting jobs.”  Among other provisions, H.R. 4213 is an adjustment to the amount of time a plan can make up losses over time and relief on funding-level restrictions (see House Bill Carries DC Disclosure Requirements).

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