Compliance October 28, 2010

Some SunTrust Stock Drop Claims Thrown Out

A federal judge in Georgia rejected claims SunTrust Banks breached its fiduciary duty by keeping company stock as an investment option in its 401(k) plan after it was no longer prudent.
Reported by

U.S. District Judge Richard W. Story of the U.S. District Court for the Northern District of Georgia contended that the plaintiffs’ stock-drop claims were a veiled attempt to impose a duty to diversify on the plan that the Employee Retirement Income Security Act (ERISA) does not include. ERISA, Story argued, ruled that there is no duty to diversify eligible individual account plans (EIAPs) that invest in employer stock.

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The stock-drop suit charged that the company said publicly that it was tightening its underwriting standards for certain types of mortgages, but actually had substandard procedures in place that allowed it to grant loans to undeserving borrowers. The plaintiffs also alleged the company led investors to believe it had scoured its portfolio and found its loss exposure was “virtually zero” on loans known as “Alt A” transactions when that was untrue.

The participants argued they lost money when the company’s share price dropped during the mortgage meltdown as part of the recent economic crisis.

In his ruling, Story also threw out claims plan fiduciaries breached their ERISA duties by making false statements in Securities and Exchange Commission (SEC) filings and other documents that were distributed to plan participants. The court said the plaintiffs had not identified specific false or misleading statements in the SEC filings.

However, Story said the employees could continue with their claim that the plan fiduciaries breached their ERISA duties by failing to provide plan participants with information about SunTrust stock that would allow them to accurately evaluate their investment in the stock.

The case is In re SunTrust Banks Inc. ERISA Litigation, N.D. Ga., No. 1:08-CV-3384-RWS.

In Practice October 28, 2010

Vendor Consolidation Helped Grow 403(b) Participant Base

Fidelity Investments reported a 20% increase over the past three years in the number of participants in its tax-exempt savings plans, which serve higher education, health care, and other not-for-profit institutions.
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Fidelity said the increase in participants is in part a result of regulatory changes in the not-for-profit or 403(b) industry that have caused some employers to consolidate providers. Many higher education and health care institutions, some of which may have as many as 50 different providers, have decided to reduce the number of retirement providers offered in their plans.   

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According to a press release, Fidelity has partnered with employers to achieve a variety of consolidation strategies, including moving to a single provider. Fidelity said emerging trends show higher education institutions embracing a two-vendor model while health care organizations are more likely to move to a single provider.  

The firm said it has made significant enhancements in technology, recordkeeping, communication, and education. Higher education and health care professionals have access to retirement guidance through a variety of services including in-person meetings at an investor’s place of work or at one of Fidelity’s 145 investor centers nationwide, along with dedicated support over the phone or through Fidelity’s participant Web site.  

Fidelity serves over 3.4 million not-for-profit participants in more than 2,000 workplace savings plans.

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