Participants in a 401(k) run by Phillips 66, Houston, have sued plan officials saying they breached their fiduciary duty under the Employee Retirement Income Security Act by keeping in the plan a large amount of common stock from the company's former parent.
The participants in the Phillips 66 Savings Plan argued that the plan's holding stock of the former parent, ConocoPhillips Co., said this strategy "violated ERISA's diversification and prudence requirements and was reckless under any common-sense investment strategy."
The lawsuit — Jeffrey Schweitzer et al. vs. The Investment Committee of the Phillips 66 Savings Plan et al. — was filed Oct. 9 in U.S. District Court in Houston. It seeks class-action status.
The plan had $4.64 billion in assets as of Dec. 31, 2016, according to the latest Form 5500 filed with the Department of Labor.
"It is our practice to not comment on legal matters," Phillips 66 said in a Tuesday email sent to Pensions & Investments.
The plaintiffs allege that the plan held $1 billion, or 25% of its assets, in ConocoPhillips stock during the class period starting May 1, 2012, through the filing of the lawsuit. Such a large holding "is, by definition, undiversified, exposing investors to extreme volatility and risk," the complaint said.
The participants argued that the problem was exacerbated by the 401(k) plan also holding Phillips 66 common stock, which "has an extremely high correlation" to ConocoPhillips stock because both companies are energy companies.
The plaintiffs didn't sue over the Phillips 66 stock.
The lawsuit claimed that the defendants "ignored the numerous warning signs that showed ConocoPhillips stock was an imprudent investment for retirement assets," a reference to the impact of falling energy prices on oil company stocks.
Phillips 66 was spun off from ConocoPhillips on April 30, 2012. According to the complaint, each ConocoPhillips shareholder received one share of Phillips 66 common stock for every two shares of ConocoPhillips stock. Phillips 66 established its 401(k) plan on May 1, 2012.
At the time of the spinoff, the former parent transferred about $2.9 billion in assets to the Phillips 66 plan, including an aggregate of $1 billion in two ConocoPhillips stock funds, the complaint said.
"A prudent fiduciary considering the prudent diversification of the (Phillips 66) plan as a whole would have removed ConocoPhillips stock," the participants said.
The lawsuit was filed by law firms Ajamie; Izard Kindall & Raabe; and Bailey & Glasser.
