More on the dangers of owning company stock in a 401(k) plan. If a little company named Enron isn’t enough to have participants thinking twice, maybe the fallout from JPMorgan’s infamous “London Whale” will do the trick.
Bloomberg reports JPMorgan Chase & Co. “once again defeated a lawsuit challenging losses in its 401(k) and employee stock ownership plans, despite an intervening U.S. Supreme Court decision changing the standard for these types of claims.”
The thrust of the class action case brought against the company was that the actions of Bruno Iksil, nicknamed “the London Whale,” whose large derivatives market bets resulted in a $6.2 billion trading loss for the company in 2012, cost participants who held ESOPs and company stock in their 401(k)s.
In its dismissal, the court found that the company as plan sponsor could not be held liable for the actions of the company as the employer of said London Whale. They were two separate entities, each not responsible for the other.
“According to the judge, the workers challenging JPMorgan’s decision to keep declining company stock in the 401(k) plan failed to allege any viable action the company could have taken instead of continuing to offer the stock,” the news service reports. “In the judge’s view, halting investments in JPMorgan stock would have required public disclosures, and the company could have reasonably concluded that those disclosures would have harmed stock price—and thus the workers’ retirement savings—even more than keeping the stock in the plan.”
In so ruling, Judge George B. Daniels found that the workers failed to demonstrate that two of the defendants—JPMorgan Case Bank NA and the parent company—qualified as ERISA fiduciaries for purposes of the stock-drop lawsuit.
“According to Daniels, JPMorgan Chase Bank’s status as the plan’s sponsor didn’t render it an ERISA fiduciary for purposes of this lawsuit, because actions taken as a plan sponsor don’t trigger fiduciary liability under ERISA. JPMorgan Chase Bank’s role as the plan trustee was similarly insufficient, Daniels said, because it operated as a directed trustee that lacked discretion to halt investments in company stock.”
Bloomberg notes that Daniels dismissed the workers’ fiduciary breach claims against the parent company on similar grounds, explaining that they had raised only “bare legal conclusions” as to the firm’s fiduciary status.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
