When Hewlett-Packard Co. sold 15.9% of the shares in newly formed Agilent Technologies Inc. in 1999, it also spun off assets from its deferred profit-sharing plan into a new plan for Agilent employees. But keeping assets of both the H-P and Agilent profit-sharing plans under the same roof was a bad idea that has prompted a class-action suit.
H-P and Agilent officials liquidated the jointly managed plans' fixed-income investment option, which had been available to workers age 55 and older. Assets in the bond fund were reinvested in the remaining balanced fund.
Now, Agilent employee Brentley Coates is suing both companies and their plans for eliminating the fixed-income fund. The class could include as many as 1,500 participants. Mr. Coates claims he has lost one-third of the value of his assets since October 1999, when he had switched his account into the fixed-income fund.
This is a lawsuit replete with ironies. For example, H-P and Agilent eliminated the fixed-income option at the peak of the bull market, when many people - and especially those in Silicon Valley - thought equities would rise forever.
Also, H-P's profit-sharing plan, which started in 1956, was progressive for its time. Originally, it forced participants to start shifting assets into the fixed-income fund when they reached age 55, requiring 100% fixed-income exposure by age 64. The switch was made voluntary in 1990.
Meanwhile, H-P froze the plan in 1993, installing a defined benefit plan for new participants, and creating a floor-offset arrangement for existing employees. If investment returns fell through the floor, H-P bore the risk.
The biggest irony, though, is that for years the paternalistic technology company had required - and later urged - its employees to invest conservatively as they approached retirement. Brentley Coates paid attention to those "coffee talks." But when he finally hit age 55, the rug was pulled out from beneath him.
In the 1950s, H-P was ahead of its time by offering the fixed-income fund. In 2000, however, the company fell behind the times. These days, even for a frozen plan, why would any company offer no investment choices for its $2.8 billion in defined contribution assets? Time will tell, with the story being told in court.