BP ERISA: Was Company Stock a Prudent Investment?

Miami, FLManagers of company benefits plans have a duty to act in the best interests of plan participants. Lawsuits filed recently, however, allege that plan fiduciaries failed to prudently invest the assets of BP employee benefits plans and violated ERISA (Employee Retirement Income Security Act) laws.

Part of the issue is that many assets of a company's employee benefits plan are often invested in the company's own stock, even when it is not prudent to do so.

A company's stock could start off as a fantastic investment for the plan's assets. When the stock is not a good investment, plan fiduciaries have a duty to put assets in a different investment. Essentially, plan fiduciaries must act in the best interests of plan participants, not the company or the company's management.

Another issue is how much of a plan's investments are riding on company stock. If only a small percentage of the plan—five percent or less—is invested in company stock, then the plan will not suffer massively if the company experiences problems. According to moneywatch.bnet.com on 6/07/10, citing Hewitt Associates, plan participants who can invest in company stock have approximately 20 percent of their assets dependent on their company's stock, which could be devastating if the company experiences trouble.

If fiduciaries are aware of issues that could make company stock a bad investment, they have a duty to prudently manage the plan's assets and move those assets if necessary. BP ERISA lawsuits allege plan fiduciaries either knew or should have known about problems that made BP stock an unwise investment.

The Associated Press reported on 7/08/10 that almost 30 percent of BP's 401(k) was invested in BP stock—worth approximately $2.45 billion—leaving many people with massive losses in their retirement plans.