Company Stock Litigation


Employees depend upon the promises made by employers when it comes to retirement. The Employee Retirement Income Security Act (ERISA) requires employers and plan managers to make sure the trust of workers is not misplaced. Employers must keep promises when it comes to defined benefits by ensuring proper funding of pension plans. When money in pension funds is invested, those who make the investments or offer advice have a fiduciary duty to act in the best interests of workers.

Part of acting in the best interests of workers and protecting pension assets involves making smart investment choices. In some cases, however, plan managers and those who manage pension assets end up investing too heavily in company stock, which can be devastating if the company suffers significant losses. Especially considering employees could end up losing their job and their retirement assets in one fell swoop, like when Enron, an American energy, commodities, and services company went under.

If you sustained losses due to investments in shares of your employer’s organization, you need a lawyer with experience in pension plan fraud to help you with company stock litigation. Zamansky LLC has experience with these cases and we know both pension plan fraud laws and ERISA rules. Give us a call today so we can help you to develop an effective legal strategy for recovering funds you lost.

When Does Investment in Company Stock Constitute Pension Plan Fraud?

ERISA explicitly recognizes the right of employees to invest in employer securities; however, ERISA also requires plan fiduciaries to diversify investments made with pension plan funds in order to reduce risks associated with significant investments in any one particular company or sector.

ERISA generally prohibits the investment of more than 10 percent of the assets held by a traditional defined benefit plan in securities that are issued by the sponsor of the plan or by any affiliates of the sponsor. Investing in company stock in excess of this limit is a clear case of fraud. This is true even if plan documents would give plan administrators the authority to purchase more company stock, as ERISA requires adherence to plan documents and interests as long as those documents are in compliance with overall ERISA regulations.

While the rules establish clear regulations for defined benefit plans managed by plan fiduciaries, the 10 percent limit applies only to defined benefit plans, not to individual accounts like employee 401(K)s. Defined benefit plans are also restricted to investment in marketable securities only, but individual employee plans are not subject to this restriction, which means there is a greater risk of loss due to over-investment in company stock in defined contribution plans.

Pension plans like 401(K)s allow plan participants to direct their own investments, and plan fiduciaries are not liable for decisions made by plan participants. However, this carve-out of liability applies only if the U.S. Department of Labor regulations are followed. In addition, if participants invest in company stock and the stock is not readily marketable, or voting or similar rights are not passed through to those participating in the plan, plan fiduciaries can once again become responsible when investments in company stocks cause losses.

How an ERISA Lawyer Can Help in Pension Plan Fraud Cases

There are many different types of retirement fraud in connection with company stock. Understanding exactly when an ERISA claim arises can be complicated. If you suspect you have suffered any losses due to investment in your employer’s business, contact Zamansky LLC to find out if company stock litigation could help you recover for your losses.