Compliance August 9, 2005

K Plan Co. Stock Case Survives Employer Challenge

August 9, 2005 (PLANSPONSOR.com) - A group of participants won a significant legal battle in their employer lawsuit over the handling of their employer's company stock in their K plan when a federal judge declined to dismiss the case.
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Senior US District Judge William Schwarzer of the US District Court for the Northern District of California ruled that the participants’ case that the company committed a breach of fiduciary duty under the Employee Retirement Income Security Act (ERISA) was strong enough to proceed, according to a BNA report.

The class-action lawsuit against JDS Uniphase (JDSU), a San Jose, California fiber optics manufacturer, charged that the company should have told participants it was no longer prudent to invest in company stock because of the firm’s failing financial condition.

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The suit against JDSU, its board of directors, and individual members of the 401(k) plan’s administrative committee stems from a company announcement in 2001 that its fiber optics sales had collapsed and that it had lost $51 billion in a 12-month period. According to the court, on making the announcement, JDSU laid off 9,000 employees and said it would cut 7,000 more jobs. As a result of the announcement, JDSU’s stock price fell in the following months from a high of $145 per share to $5 per share.

Schwarzer dismissed the directors’ contention that they would have violated insider trading rules if they had forced participants to sell off their JDSU stock based on the directors’ knowledge that the demand for fiber optics was falling, and impacting JDSU’s finances.

In addition, the court rejected the defendants’ contention that the participants’ fiduciary breach claims should be thrown out because they sought individual relief instead of plan-wide relief. According to the court, the participants sought plan-wide relief because all participants were affected by the alleged fiduciary breaches because all employer matching contributions made on behalf of the participants were made to the plan in the form of JDSU stock.

The case is In re JDS Uniphase Corp. ERISA Litigation, N.D. Cal., and No. C 03-04743 CW (WWS), 7/14/05.  

Investing August 8, 2005

S&P: International Equities See Bullish July

August 8, 2005 (PLANSPONSOR.com) - July's 3.85% was the best month so far for the S&P/Citigroup Developed World Index, and its strong performance has vaulted the index to a year-to-date return of 4.20%, S&P has announced.
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An S&P news release said regions across the developed world finished July in positive territory, and remain there year-to-date.  The North America, Europe and Asia Pacific regions posted 4.18%, 3.76% and 2.70% gains respectively in July, and are now up 4.71%, 4.30% and 1.97% since January 1, 2005.  Individual country returns ranged from 0.18% for Finland to 11.57% for South Korea.

“Gains were widespread in July with every developed world country posting increases, whether calculated in US dollar or local currency terms,” said Nicholas Aninos, analyst at Standard & Poor’s, in the news release. “All of the major regions were in positive territory during the month, whether investors used cap-range, style, or industry to define their universe.”

According to the S&P data, countries in the S&P/Citigroup Emerging Markets Index registered July performances ranging from a 5.08% giveback in Venezuela to an 18.22% gain in Jordan.  The three heavyweights, Taiwan, South Africa and Brazil, posted strong gains of 3%, 7.66%, and 4.85% respectively during July.  The S&P/Citigroup Emerging Market Index increased 5.92% during the month.

The S&P/Citigroup Global Composite Index returned 3.95% for the month of July across developed and emerging markets. Year-to-date, the Emerging Market Index leads with an 11.59% gain, lifting the Global Composite to a 4.55% increase, according to the announcement.

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