Employees of large firms have evidently learned lessons from the days of Enron. And those lessons have spread to Wall Street firms. Wall Street employees who invested in 401(k) plans at their firms are suing those firms, claiming the firms focused on investing in company stock in the plans last year just as the top five banks saw their stock values plummet by $2 billion.
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Bank of America’s stock price took a 60% hit; Morgan Stanley’s declined 44%, then added another $570 million. Some employees are alleging that firms invested in company stock during the 2008 recession, a time when bank stock values were hit hardest.
It is expected that Section 404(c) of the Employee Retirement Income Security Act (ERISA), which mandates a broad array of investment choices for plan participants, will be examined during the case. The rule stipulates that opportunities must be made available for employees to diversify their investments to hedge against risk of loss.
Section 3(21) of ERISA also states that co-fiduciary advisors on retirement plans are also responsible for making sure employee plans are diversified. This places them at risk
if they fail to fulfill this duty.
What’s to be learned from this? For one, plan sponsors need the advice of astute advisors who can help them properly manage their retirement plans. This may be an opportunity for you to talk to your business-owning clients about their retirement plan investment strategies.