A U.S. District Court in Atlanta dismissed part of a lawsuit against Beazer Homes USA filed by employees in its 401(k) plan who claimed the company breached its fiduciary duty by offering failing company stock as an investment option.
The 401(k) plan had $63.7 million in assets as of Dec. 31, 2008, according to the 2009 Money Market Directory.
The class-action lawsuit claimed that between July 28, 2005, and Nov. 2, 2007, Beazer allowed its employees to invest part of their 401(k) assets in company stock, even as the stock was declining in value. The plan lost at least $46 million during the class period, according to the lawsuit.
U.S. District Court Judge Richard W. Story cited three similar court rulings in the Northern District of Georgia in ruling on April 2 that failure to diversify plans such as Beazer’s 401(k) plan does not constitute a breach of fiduciary duty under ERISA.
Mr. Story did not dismiss lawsuit allegations that Beazer executives had an obligation to disclose information about the health of the company to its 401(k) plan and compensation committees.
“When a corporate insider puts on his ERISA hat, he is not assumed to have forgotten adverse information he may have acquired while acting in his corporate capacity,” Mr. Story wrote in the ruling, citing a similar case in 2003 involving WorldCom.
Mr. Story also allowed another portion of the lawsuit — that company officials failed to disclose information to plan fiduciaries about the risks associated with owning company stock — to continue.
He wrote that the court “does not find that securities laws shield defendants from their fiduciary duties under ERISA to plan participants.”
