Compliance October 4, 2006

Court OKs $100M AOL Time Warner 401(k) Suit Settlement

October 4, 2006 (PLANSPONSOR.com) - A federal judge in New York has approved a $100-million settlement in a 401(k) fiduciary responsibilities breach case against AOL Time Warner.
Reported by

US District Judge Shirley Wohl Kram of the US District Court for the Southern District of New York noted that an independent fiduciary had already reviewed the settlement’s terms and agreed that the settlement would be fair, according to the ruling.

Only two members of the class of 65,000 participants had voiced any objection to the proposed settlement, Kram said.

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In her ruling, Kram pointed out that several federal courts have recently thrown out lawsuits seeking damages from fiduciaries that maintained heavy investments in a company’s stock while the stock’s value declined. Kram also noted that if she were to adopt the “impending collapse” standard used by other federal courts, participants would have been forced to overcome a presumption that it was prudent for the plan to invest in AOL stock.

In addition, the court said that if the litigation were to continue, the participants might lose on their claims because several other courts have found that plaintiffs lack standing under the Employee Retirement Income Security Act (ERISA) Section 502(a) (2) when only a subset of a plan’s participants will obtain recovery

The lawsuit alleged that the defendants breached their ERISA fiduciary duties by:

  • investing in AOL’s stock fund during a period in which AOL lost its traditional online advertising revenue base
  • negligently making misrepresentations and failing to disclose material information necessary for plan participants to make informed decisions concerning plan assets and benefits
  • failing to appoint fiduciaries with the knowledge and expertise necessary to manage plan assets
  • selling AOL while at the same time allowing the plan to maintain its investment in the AOL stock fund.

Kram refused AOL’s request in March 2005 to dismiss the case (See Court Refuses to Dismiss AOL Time Warner Company Stock Suit ). Settlement talks began after that ruling, leading to the current pact.

Kram said that the settlement was one of the largest ever ERISA settlements.

The case is In re AOL Time Warner ERISA Litigation, S.D.N.Y., No. 02 Civ. 8853 (SWK), 9/27/06.

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