BOSTON -- Genzyme Corp. has sued BankBoston Corp., claiming the bank did not follow instructions when transferring Genzyme's 401(k) plan to another provider, and claiming the bank cost the retirement plan an estimated $600,000.
Genzyme put $634,086 into the company's retirement plan "to protect the interest of its employees who were participants and to avoid increasing damages," court documents state.
The filing of a lawsuit in such cases is rare, industry participants say. Switching 401(k) record keepers is traditionally tedious and tricky. Slipups in the process generally are handled privately between the parties, said one longtime record keeper.
In the suit filed July 27 in federal district court in Boston, Genzyme claims BankBoston did not correctly follow instructions when told to liquidate the $40 million 401(k) plan it managed for Genzyme. The assets were being transferred to Genzyme's new provider, CIGNA Retirement & Investment Services, Hartford, Conn.
BankBoston was instructed to complete the paperwork, then liquidate and transfer the assets, according to court documents.
BankBoston, however, liquidated the assets on May 1 and May 2, 1997, and placed the money in a low-interest money market account. The cash sat for nearly two weeks while BankBoston completed the paperwork, then the assets were transferred to CIGNA, according to the lawsuit.
The stock market surged during early May 1997; Genzyme executives believe plan participants lost out on possible gains of $600,000, prompting the company to make the $634,086 contribution.
Now Genzyme wants BankBoston to reimburse the company.
BankBoston officials are unwilling to comment, except to say they oppose the allegations. BankBoston had handled the Genzyme 401(k) account since 1988. The two parties have tried unsuccessfully to mediate the dispute.
"It's not unusual there was a black-out period," a dead time when assets aren't earning fully, because they are liquidated and being transferred, said one long-time record keeper when he heard about the lawsuit. "But it's very unusual they (the plan sponsor) restored the account."
"The fact that no one lost any money is not relevant," said Arthur Telegen of Foley, Hoag & Eliot LLP, Boston, Genzyme's outside counsel for the case.
"In the eyes of the law, the failure to gain was a loss. The participants didn't earn the money they should have, money that they had coming to them," Mr. Telegen said.
Genzyme officials would not comment on why they chose to reimburse the plan.
Genzyme has a defined contribution plan for the company's directors and a 401(k) for Genzyme's domestic employees; the latter is believed to be the plan at issue.
Genzyme offers a company match to participants; the company contributed $1.5 million in 1997, the year of the dispute, and $1.1 million in 1996, according to Genzyme's 10-K filing for 1997.
Attorneys not involved in the case wondered why Genzyme officials felt obligated to reimburse the plan.
"Were they at fault somehow?" asked David Morse, an attorney who counsels on fiduciary matters at Whitman Breed Abbott & Morgan LLP, New York.
"Typically, there's a black-out period when you have to hold your breath. But these transactions are done every day and usually they are done right," Mr. Morse said.
Frank Bermani, executive director of the Society of Professional Administrators and Record Keepers, Simsbury, Conn., is surprised there haven't been more lawsuits along these lines.
"This (record keeping) is a very time-consuming, exacting business. And these transfers hardly ever come out totally clean. It's like buying a house -- there's always a surprise or two," said Mr. Bermani.