Sears Hit With Second Lawsuit Over Company Stock in 401(k) Plans

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By Carmen Castro-Pagan

Sears Holdings Corp. was sued for the second time in a month over its decision to retain and continue purchasing its own declining stock as an investment option in the retailer’s 401(k) plans ( Meriwether v. Sears Holdings Corp. , N.D. Ill., No. 1:17-cv-05825, complaint filed 8/10/17 ).

Numerous publicly known “red flags” alerted Sears that its own stock was an “unsuitable” investment for retirement, a participant in Sears’ savings plan alleged in a lawsuit filed Aug. 10 in federal court in Illinois. Despite this knowledge, plan fiduciaries “stood idly by” and failed to properly monitor the continued prudence of investing Sears stock while the value of the participants’ investments in stock continued to plummet, the lawsuit said.

The lawsuit also targets Edward Lampert, Sears’ chief executive officer. Lampert had “first-hand knowledge of the depth of Sears manifold financial troubles” and allegedly was responsible for appointing and monitoring other executives in charge of overseeing the plans’ investment options, according to the lawsuit.

This isn’t the first time Sears has had to defend a class action over its declining stock in its employees’ 401(k) plans. Ten years ago, Sears reached a $14.5 million settlement over allegations that it violated the Employee Retirement Income Security Act by retaining its declining stock in the company’s retirement plan.

Workers challenging their employers’ decision to invest their retirement assets in poorly performing company stock have consistently lost in court. In recent days, courts ruled against employees suing Arch Coal, Whole Foods, and Target Corp. Other major companies that have recently beaten these lawsuits include Reliance Trust Co., Lehman Brothers Holdings Inc., State Street Bank & Trust Co., RadioShack, Citigroup, Eaton Corp., JPMorgan Chase & Co., IBM Corp., and BP Plc.

Sears stock fell from $38.10 to $8.87 in a three-year period, a decline of over 76 percent, according to the latest lawsuit against the company. The participant alleges that it should have been “manifestly clear” to Sears by at least May 2014, if not earlier, that Sears stock was no longer a prudent investment option for the company’s retirement plans, based on publicly available data.

As of January 2017, participants were no longer allowed to invest their assets in the company stock. This decision was “too little, too late,” because by this time, the value of the stock had dropped down significantly, causing “tremendous losses” to participants, the lawsuit said. The participant alleges that Sears should have stopped buying additional stock well before January 2017 and should have divested the plans of their Sears stock after disclosing its reasons for doing so. These actions would have prevented millions of dollars in losses, the lawsuit said.

The lawsuit seeks class treatment for approximately 215,000 participants in two Sears’ retirement plans.

Sears declined to comment.

Keller Rohrback LLP and Stephan Zouras LLP represent the proposed class.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at ccastro-pagan@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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