Compliance October 12, 2009

Court Dismisses Company Stock Suit against Harley-Davidson

October 12, 2009 (PLANSPONSOR.com) - The U.S. District Court for the Eastern District of Wisconsin has dismissed a lawsuit accusing Harley-Davidson and certain of its executives of breaching their fiduciary duties under the Employee Retirement Income Security Act (ERISA) by continuing to offer company stock as an investment option in the company's retirement plans.
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After first determining that former employee Lisa Bosman had standing to sue even though she had cashed out her retirement plan account, Chief U.S. District Judge C. N. Clevert, Jr. said that “Stating a valid claim of imprudence under these circumstances requires more than allegations that there were gaps between supply and demand and a corresponding bad quarter.”

Dismissing the suit for failure to state a claim, Clevert likened Bosman’s claims to those in Edgar v. Avaya , in which the 3 rd U.S. Circuit Court of Appeals found that a disruption in sales and the corresponding drop in stock price do not create the type of dire situation which would require defendants to disobey the terms of the plans by not offering company stock as an investment option, or by divesting plans of company stock (see  Case Sensitive: “Dire” Circumstance ).

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In addition, Clevert said, “Bosman’s assertions are even more dubious given that the April 2005 stock price drop was in no way indicative of a chronic, deteriorating financial condition.” He noted the company’s stock prices generally increased throughout the remainder of the class period.

According to the opinion, the retirement plans at issue gave participants a choice of 19 funds, including the Harley-Davidson Stock Fund, and company match contributions were invested in the company stock fund, but were only required to remain there until participants were fully vested at three years of service or until age 55. The opinion also said that the SPD warned in bold, all capital letters that ” IT IS VERY IMPORTANT THAT YOU NOT PUT ALL OF YOUR RETIREMENT SAVINGS IN JUST ONE FUND – AND THIS INCLUDES THE HARLEY DAVIDSON COMMON STOCK FUND .”

Bosman had invested all of her plan assets in company stock.

She asserted in her suit that Harley-Davidson was shipping to dealers more motorcycles than were being sold, and that Harley-Davidson Financial Services (HDFS) lowered credit standards to boost sales. The complaint asserts that these practices were intended to deceive the market and to cause Harley stock to trade at inflated prices, leading to an April 13, 2005, announcement that Harley was adjusting its shipment and earnings projections, which caused a 23% drop in the value of Harley stock over the next several days of trading.

The case isIn re Harley-Davidson Inc. Securities Litigation,E.D. Wis., No. 05-C-0547-CNC, 10/8/09.

Administration October 9, 2009

Wis. Pension Board Approves $1.7-million Incentive Bonus Program

October 9, 2009 (PLANSPONSOR.com) - A senior portfolio manager of the State of Wisconsin Investment Board will get a $150,000 bonus and three others $100,000 or more as part of the board's $1.7-million performance incentive program, the Associated Press reported.
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The news account said the board approved the amount for 2008 performance, but delayed payment until 12 months after the 64-member investment staff achieves a positive year of returns – likely to be 2011 since the pension program has enjoyed solid gains this year. The incentives have historically been paid in March.

In addition to those in line for potential six-figure bonuses, the news report said 20 others could get $25,000 or more, with a total of 48 investment employees to get the bonus payments.

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According to the news report, agency spokeswoman Vicki Hearing acknowledged some retirees were not happy with the bonuses, but said the board’s trustees decided they needed to reward employees who expected compensation for exceeding investment goals.

”They struggled because of the impact on the participants, and at the same time, you had staff that basically performed their job in the way they were asked to, with the idea they would be compensated for that,” Hearing said. ”This is about their active management of portfolios.”

Governor Jim Doyle has suspended bonuses for state employees since last year to save money, but the directive does not apply to the pension agency.

The board, which spent $2.45 million on bonuses last year, reduced the number of eligible employees by excluding anyone who missed investment benchmarks. Three top agency officials — executive director Keith Bozarth, deputy executive director Gail Hanson and chief investment officer David Villa — also declined bonuses.

The board manages and invests assets for the ninth largest public pension fund in the U.S., which includes retirement funds for state employees, teachers, and most municipal employees.

Similar investment bonus programs have proven controversial in a number of states where pension funds have suffered significant asset losses because of the down market (see Running the Fund: Pay for Performance ).

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