Data & Research March 30, 2010

Retirement Picture for Early Boomers not that Bad

A new report indicated that while Early Boomers lost a lot of money ($1 trillion) during the economic downturn, they have already recovered roughly half of these losses, and those with balanced portfolios may have recovered fully.
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In addition, the brief released by the Center for Retirement Research at Boston College said that over their full working careers, the Early Boomers have actually been treated well by the financial markets, measured against lifetime returns on retirement assets and the experience of the Late Boomers and Generation Xers. Researchers found Early Boomers have enjoyed a 9.2% lifetime return on equities.        

This compares to a 5.5% lifetime return for Late Boomers, and a 0.3% return for Gen Xers. The report noted that Gen Xers may be able to catch up, but Late Boomers are more vulnerable because they have less time to recover before retirement.    

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Recently, Mercer reported that as of year-end 2009, nearly 70% of defined contribution participant balances have returned to levels prior to the stock market declines of 2008 and early 2009, but the recovery has not been as strong for older participants as younger ones (see “Mercer: DC Plan Recovery not as Strong for Older Participants”).     

CRR Researchers looked at three hypothetical employees who were age 30 (Gen Xer), 40 (Late Boomer), and 50 (Early Boomer) in 1999, who all began contributing 6% to their 401(k) at age 30, and their employers made a matching contribution of 3%. The employees’ starting salary was based on median earnings for those 30, 40, and 50 with 401(k)s, as reported in the Federal Reserve’s 1998 Survey of Consumer Finances. Nominal salary growth was estimated at 3%.      

 

Compliance March 30, 2010

Court Dismisses Fiduciary Breach Claims against KV Pharmaceutical

A federal court has dismissed claims by employees of KV Pharmaceutical Co. that the company breached its fiduciary duties by continuing to offer company stock in the its retirement plan at a time when the stock price was dropping steadily.
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The U.S. District Court for the Eastern District of Missouri rejected plaintiffs’ arguments that the Employee Retirement Income Security Act (ERISA) does not include a presumption of prudence for plans that invest in company stock; courts only extend the presumption to fiduciaries of employee stock ownership plans; and the presumption is an evidentiary standard that should not be applied at the motion to dismiss stage. 

The court said that while the 8th U.S. Circuit Court of Appeals has not yet adopted the presumption of prudence, most other courts have adopted the presumption and have found that it can be applied at the motion to dismiss stage. 

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While the court found that the allegations in the employees’ complaint were sufficient to overcome the presumption of prudence, it said their complaint was deficient because it did not meet the heightened pleading requirements set forth in Federal Rule of Civil Procedure 9(b), which applies to claims that “sound in fraud” and requires that the allegations be pleaded with particularity. According to the court, the employees repeatedly asserted that the defendants made false and misleading statements, but the employees did not allege that the defendants made any statements regarding KV Pharmaceutical’s operational and financial status.  

“Although plaintiffs cite to KV’s press releases and [Securities and Exchange Commission] filings in their amended complaint, plaintiffs fail to allege the specific statements in these public announcements were false and misleading,” the opinion said. 

The case was brought on behalf of all employees who invested in the company’s Class A and Class B common stock between February 2, 2003, and the present. It alleged that during the class period, KV Pharmaceutical’s stock had a steady decline due in part to several warning letters issued by the U.S. Food and Drug Administration.  

According to the opinion, in December 2008, KV Pharmaceutical recalled its painkiller hydromorphone, causing a significant drop in the company’s stock price. The stock price fell even further after the company suspended shipment of all of its FDA-approved drugs in tablet form, and stopped manufacturing and distributing all its products in January 2009. 

The case is Crocker v. KV Pharmaceutical Co., E.D. Mo., No. 4:09-CV-198 (CEJ), 3/24/10.

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