J.C. Penney is poised to pay $4.5 million to settle allegations over company stock in the firm's 401(k) plan, following a District Court judge's preliminary approval of the settlement.
Participants in the company's 401(k) plan filed a lawsuit, Ramirez vs. J.C. Penney Corp. Inc. et al., in 2014 after allegedly losing hundreds of millions of dollars in aggregate due to a decline in the price of the company's stock.
The plaintiffs claimed plan fiduciaries knew the company stock, which was offered as an investment option, was an imprudent investment because it was artificially inflated in value, and therefore breached the company's fiduciary duties.
The plan held roughly $514 million in the J.C. Penney Common Stock Fund around December 2011, roughly 15% of the $3.5 billion in plan assets at that time, according to the original complaint. In November 2011, the stock price was $31 per share, but declined to $9 per share as of September 2013.
A J.C. Penney spokesman did not respond to a request for comment. Jacob Zamansky, founder of his eponymous law firm, which represents the plaintiffs, also didn't answer a request.
More than 300 such stock-drop lawsuits have been filed within the past 15 or so years, when they first began to emerge, and many have been settled, according to Marcia Wagner, principal of The Wagner Law Group. The median settlement in such cases is about $6 million, Ms. Wagner said.
A 2014 Supreme Court ruling in a stock-drop case, Fifth Third Bancorp vs. Dudenhoeffer, made it more difficult to mount such lawsuits, according to Ms. Wagner.
“The Supreme Court now requires that a viable complaint must allege that a prudent fiduciary could not have concluded that actions disclosing the company's difficulties and divesting plan holdings in company stock would do the plan more harm than good,” Ms. Wagner said.
Roughly 18% of 401(k) plans offer company stock as an investment option, according to the Plan Sponsor Council of America.
That percentage has been trending downward, however. Consultant Callan Associates has witnessed a nearly 10-percentage-point drop since 2009 in the number of defined contribution plans offering company stock, for example.