ERISA Lawsuit Filed Against Fannie Mae

Minneapolis, MNIn addition to a variety of financial problems, Fannie Mae (the Federal National Mortgage Association) now faces a lawsuit alleging the company violated ERISA laws. The lawsuit, which seeks class action status, was filed on behalf of all those who were participants in or beneficiaries of the company's Employee Stock Ownership Plan between April 17, 2007 and now.

According to the lawsuit, plan managers breached their fiduciary duties by continuing to invest the Plan's assets in Fannie Mae common stock when it was no longer prudent to do so and by maintaining pre-existing investments in Fannie Mae equity when it was not prudent to do so.

In a different lawsuit, a plaintiff who sued her former employer for breaches to ERISA laws has been told by a Court of Appeals that her contract breach claim can move ahead. The plaintiff alleged her employers and 2 corporate officers did not make employer contributions to her 401(k) for 5 years and that although her own contributions were withheld from her paychecks, not all were properly deposited into the plan.

The Court of Appeals found that the defendant's actions constitute a breach of written contract, which has a statute of limitations of 10 years, as opposed to a breach of fiduciary duty, which has a statute of limitations of 6 years. The judge also ruled that the plaintiff should have been awarded statutory penalties because her employer did not provide her with plan documents, which the judge determined showed conduct in bad faith and therefore deserving of a statutory award.

Some analysts predict that the number of lawsuits related to employee pension plans may go up following the economic crisis. According to Mark Risk, an employment lawyer quoted in The New York Times, "...if the stock is held in a 401(k) or other retirement plan, the federal pension law, Erisa, imposes a fiduciary duty on the plan's managers to act prudently in the management of the plan assets. Participants have been bringing class-action lawsuits under that law as well, sometimes allege that the disproportionate investment of plan assets in the stock of the employer is an imprudent failure to diversify."

Other issues that can come up in lawsuits are excessive fees charged by the funds and kickbacks to the employer. Zachary Hummel, an employment lawyer quoted in The New York Times, says that some cases involve plaintiffs who allege the fees are too high and some of those fees are given back to the employer as a payoff for using a particular fund. He notes that pension funds make investments and have expenses and the integrity of the fund depends on those investments and expenses.

Unfortunately, many pension funds are underfunded. One recently filed lawsuit highlights another issue that can be filed as an ERISA violation--the defendants are accused of using the company's Employee Stock Option Plan (ESOP) assets to purchase company stock from the company's President and CEO at an inflated price. The suit was filed against The Employee Ownership Holding Company and alleges that the Plan's managers cost the Plan millions of dollars. Plaintiffs claim that the CEO received around $34.4 million in cash and property in exchange for stock that was valued at less than $500,000 and other non-ESOPcompensation that was worth far less than the CEO was given.

There are many lawsuits currently being filed by employees who believe their company has improperly used or managed their stock option plans, violating ERISA laws. If you believe this has happened to you, contact a lawyer to discuss your options.