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Sept. 20 — Four American International Group Inc. retirement plans can share in a $725 million securities settlement between AIG and its investors, the U.S. Court of Appeals for the Second Circuit ruled ( In re Am. Int’l Grp., Inc. Sec. Litig. (Rothstein v. Am. Int’l Grp., Inc.) , 2016 BL 308876, 2d Cir., No. 14-4067-cv-L, 9/20/16 ).
In 2014, a federal judge denied the retirement plans a piece of the settlement pie on the grounds that they were “affiliates” of AIG and thus specifically excluded from profiting by the terms of the settlement agreement. Partly undoing that ruling, the Second Circuit said Sept. 20 that the “important statutory limits” placed on retirement plans by the Employee Retirement Income Security Act belied the idea that the AIG plans were affiliates of the company.
The $725 million settlement between AIG and shareholders resolved allegations first raised in 2004 that the company engaged in accounting fraud, stock price manipulation and other violations. With this ruling, AIG workers who invested in the company’s stock through their retirement accounts will reap similar benefits to those who invested outside of a retirement plan, the Second Circuit said.
In allowing the AIG retirement plans to share in the settlement, the Second Circuit focused on the “substantial” limitations that ERISA places on a company like AIG on its ability to control its retirement plans.
The Second Circuit declined to follow a decision in which the Seventh Circuit addressed an “almost identical fact pattern.” In that case, the Seventh Circuit said that a 401(k) plan sponsored by Motorola Inc. was barred from sharing in a $190 million securities settlement as an “affiliate” of the company because the committee that oversaw the 401(k) plan served “at the pleasure” of Motorola’s board of directors.
According to the Second Circuit, the Motorola decision failed to consider the role ERISA plays in limiting an employer’s control over its retirement plan. Because ERISA requires that plans be managed for the exclusive benefit of participants and beneficiaries, employers like AIG lack the type of control over their plans that might be expected in a “garden variety parent-affiliate relationship,” the Second Circuit explained.
This reasoning is consistent with the Department of Labor’s stated position that ERISA plan participants shouldn’t be disadvantaged when compared with other shareholders who benefit from securities litigation settlements, the Second Circuit said. The decision also accords with the position of the American Benefits Council, which filed an amicus brief urging the Second Circuit to allow the plans to share in the settlement.
Following this ruling, a district judge will be tasked with determining how much of the $725 million settlement fund belongs to the AIG retirement plans.
Judge Rosemary S. Pooler wrote the court’s decision, which was joined by Senior Judge Robert D. Sack and District Judge Katherine Polk Failla of the U.S. District Court for the Southern District of New York, sitting by designation.
Alston & Bird LLP represented the AIG retirement plans. Labaton Sucharow LLP and Robbins Geller Rudman & Dowd LLP represented the AIG investors seeking to exclude the retirement plans from the settlement.
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Text of the decision is at http://www.bloomberglaw.com/public/document/SHARYN_ROTHSTEIN_MARISA_ROTHSTEIN_MOLLYE_ROTHSTEIN_Objector_ALAN_.
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