FMC Defeats Lawsuit Over Sequoia Fund Investment in 401(k) Plan

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Carmen Castro-Pagan

FMC Corp. and its executives defeated a lawsuit accusing them of violating federal benefits law by allowing millions of dollars in 401(k) assets to be invested in the Sequoia Fund and the stock of drugmaker Valeant Pharmaceuticals Inc.

The workers’ allegation—that FMC and its executives breached their fiduciary duties to monitor plan investments and remove alleged imprudent ones—fails to state that offering the undiversified Sequoia Fund violated the plan documents and federal benefits law, Judge Berle M. Schiller held March 16. This is so because, contrary to the workers’ allegations, both the Employee Retirement Income Security Act and the plan didn’t require that each investment option be diversified, Schiller said.

Schiller’s decision is the latest to come from a series of lawsuits challenging employers’ decisions to allow the Sequoia Fund as an investment option in their 401(k) plans. The non-diversified mutual fund invested heavily in Valeant stock at a time when its price dropped nearly 90 percent in less than a year, causing millions of dollars in losses to investors.

Last month a federal judge in Nebraska refused to dismiss a lawsuit accusing National Indemnity Co. of breaching its ERISA fiduciary duties by offering the fund as an investment option in its retirement plan. A lawsuit involving the 401(k) plan of Walt Disney Co. was dismissed in 2017, and several lawsuits have targeted business services firm DST Systems Inc. and Ruane Cunniff & Goldfarb Inc.—the investment firm that managed the Sequoia Fund.

The FMC workers’ interpretation that offering the Sequoia Fund violated the plan couldn’t be sustained because the plan itself provided for the Sequoia Fund to be included as an investment option, Schiller said.

The lawsuit also offered no direct allegations of flaws in FMC’s process of managing the plan’s investments, Schiller said. On the contrary, the workers’ allegations regarding FMC’s investment-monitoring procedures tended to weaken their case, not support it, Schiller said.

The workers’ lawsuit states that FMC should have known the fund was an imprudent investment because FMC executives met with Sequoia Fund managers, sought advice of consultant Aon Hewitt, and eventually followed its recommendation and replaced the fund with another option. If anything, Schiller said, the lawsuit shows that FMC and its executives conducted a regular review of investment options.

Schiller, of the U.S. District Court for the Eastern District of Pennsylvania, denied the workers’ request to file an amended complaint.

Stull Stull & Brody and Weinstein Kitchenoff Asher LLC represent the workers. Morgan Lewis & Bockius LLP represent FMC.

The case is Harmon v. FMC Corp., 2018 BL 90766, E.D. Pa., No. 2:16-cv-06073-BMS, order granting defendants’ motion to dismiss 3/16/18.

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