Supreme Court to Investigate IBM Stock Drop’s Influence on Corporate 401(k) Plan

Managers overseeing investments for a retirement fund concerning IBM employees are due to be investigated by the nation’s highest court, after the US Chamber of Commerce implored the justices to decide whether the managers investing in the company’s stock failed to disclose whether it was overvalued.

The plaintiffs in the case stated that the managers of IBM’s retirement fund—the Retirement Plans Committee of IBM—were either cognizant or had sufficient intelligence to determine that the company’s equity was overvalued when allocating employees’ retirement funds towards it.

When IBM sold its computer chip business to GlobalFoundries, the company’s stock price plunged by about 7%, prompting a lawsuit from plan members. That suit was dropped but later revived and allowed to proceed as a class action lawsuit by the US Court of Appeals for the Second Circuit. IBM then countered by asking the Supreme Court to review the lower court’s decision.

The IBM committee argued that such a case “reopens the door to lawyer-driven class actions that spring up after every stock drop.” In the past, courts have rejected similar class action lawsuits, including the retirement plans of Whole Foods, JP Morgan, BP, Target, Radioshack, Citigroup, and others.

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The IBM committee launched a petition that garnered the support from the US Chamber of Commerce, which argued that the case’s arguments discourage plan sponsors from offering employee stock ownership plans in the future.

IBM referred to a similar case–Fifth Third Bancorp vs. Dudenhoeffer—where the Supreme Court ruled that in order to prove a fiduciary breached its responsibilities, the case must allege that there was another strategy the defendant could have legally pursued, and that a fiduciary wouldn’t have thought that halting a transaction would do more harm than good.

“There is simply no denying that allegations deemed sufficient here would not suffice in the fifth and sixth circuits,” IBM said in a prepared statement.

The Supreme Court will tend to the case in its next term, beginning in October.

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Tags: Chamber of Commerce, IBM, Pension, US Supreme Court

The $80 billion Ohio State Teacher’s Retirement System (OSTRS) is being sued in federal court by two retired teachers who accuse the trustees of the retirement system of unlawfully ending their cost-of-living allowances (COLAs).

The retired teachers, Dean Dennis and Robert Buerkle, both worked in the Cincinnati Public School System for at least 35 years, and upon retirement, both were approved for a retirement allowance and became vested under Ohio law

According to court documents, the plaintiffs allege that the indefinite elimination of the 2% annual COLAs, which it says are mandated by Ohio law, violates the US Constitution, the Ohio Constitution, and state laws. They are seeking damages and declaratory and injunctive relief for themselves and all other retired teachers in the form of reinstatement of their COLAs, and restitution of foregone COLAs.

“By circumventing and disregarding the mandatory statutory process for adjusting cost-of-living allowances, the board acted unlawfully and deprived plaintiffs and the class of their substantial vested property interest in their retirement benefits,” says the complaint.

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Because the teachers are asking the court to certify their case as a class action, it could open it up to nearly 150,000 retired teachers.

In 2017, the OSTRS board voted to indefinitely eliminate COLAs for retirees receiving monthly pension allowances beginning on July 1 of that year. The teachers say that prior to the decision, the retirement system’s actuary never presented an actuarial valuation that showed that the indefinite elimination of COLAs was necessary to preserve the fiscal integrity of the system.

“The State Teachers Retirement Board broke faith with Ohio’s retired teachers in 2017, when it abruptly and indefinitely eliminated their cost-of-living increases without due consideration, and without a valid legal basis for its action,” said Finney Law Firm, which is representing the teachers, in a statement. “Our clients worked for decades, for very modest compensation … over the course of those decades of work, our clients had been repeatedly promised that, in their retirement years, they would receive annual cost-of-living adjustments that would at least allow them to keep pace with inflation.”

According to the complaint, in November 2016, the OSTRS board’s actuary reported in its actuarial valuation that the plan had experienced net gains during the year and maintained a steady funding percentage. And in March 2017, the actuary submitted an actuarial experience review that recommended changes to several actuarial assumptions, such as reducing the rate of inflation assumption to 2.5% from 2.75%, and a reduction in the assumed rate of return to 7.00% from 7.75%.

“The actuarial experience review projected that the effect of the proposed assumption changes would be to reduce the plan’s funding percentage,” said the complaint. “However, there is no mention in the actuarial experience review that a reduction or elimination of cost-of-living allowances was recommended or necessary.”

The plaintiffs’ lawyers argue that the financial issues that the board cited as the justification for eliminating the COLAs “could have been addressed in a variety of ways that would not have dealt such a devastating blow to our retired teachers.”

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Tags: COLA, Ohio, Ohio State Teachers Retirement System (OSTRS), OSTERS, Pension