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EBSA News Release: [10/16/2006]
Contact Name: Gloria Della or Peter Hong
Phone Number: (202) 693-4676 or x8664
Release
Number: 06-1797-NAT
U.S. Labor Department Sues Plan Officials for Mismanaging $50 Million
in Assets of New York 401(k) Plan
NEW YORK — The U.S. Department of Labor has sued the fiduciaries of the Agway Inc. 401(k) plan, in DeWitt, N.Y., for imprudently investing approximately $50 million of the plan's assets in the securities of the company, valuing the stock at prices higher than market value, and giving participants false information about the investment.
"The workers in this case were betrayed by those entrusted to administer and oversee their 401(k) plan," said Secretary of Labor Elaine L. Chao. "With this lawsuit, the Department of Labor seeks full restoration of the 401(k) plan so that the workers' retirement dreams are not destroyed by the gross mismanagement of their retirement funds."
According to the lawsuit, 47 members of the investment committee, administration committee and the Agway board of directors violated the Employee Retirement Income Security Act (ERISA). The investment committee allegedly failed to investigate the prudence of investing in Agway securities, to determine the fair market value of securities acquired by the plan, and to monitor and divest the plan's holdings in the securities. As a result, the department alleges the defendants caused the plan to incur substantial financial losses. They also allowed the plan to purchase and hold securities at prices that exceeded fair market value. The value of stock purchased and held by the plan was set by Agway. Until July 2002, all contributions made by Agway were required to be invested in employer securities.
In addition, the suit alleges that the administration committee allowed Agway and the plan to provide false and misleading information to plan participants about investments in Agway securities, and that the board of directors failed to protect the interest of participants and beneficiaries when they failed to oversee the activities of plan fiduciaries.
The suit seeks a court order requiring the defendants to restore to the plan all losses with interest and to forfeit any plan benefits if all losses suffered by the plan are not restored. The Department of Labor's lawsuit was filed in U.S. District Court for the Northern District of New York.
Before filing for Chapter 11 bankruptcy in October 2002, Agway Inc. was a cooperative that provided agricultural products and services to member farmers and other customers through its subsidiaries. The 401(k) plan covered 4,080 participants as of June 30, 2002. The plan held approximately $48 million in Agway securities and $2 million in cash reserves. An independent fiduciary, Fiduciary Counselors Inc., was appointed in 2004 to manage the plan.
The suit resulted from an investigation conducted by the New York regional office of the Labor Department's Employee Benefits Security Administration (EBSA). In fiscal year 2005, the department achieved monetary results of $1.7 billion in pension, 401(k), health and other benefits for millions of American workers and their families.
Employers and workers can contact the EBSA office in New York at (212) 607-8600 or toll-free at 1 (866) 444-3272 for help with problems relating to private-sector pension and health plans.
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