Delta 401(k) Manager Puts the Brakes on Company Stock Investment

In a letter to employees, independent financial adviser US Trust Corp said it is freezing the Delta Stock Fund due to “very serious financial difficulties” currently facing Delta.   Specifically, the letter pointed to “the widely recognized possibility of bankruptcy if Delta were to fail in its restructuring efforts” in its reason to freeze new investment in the fund, according to a Newsday report.

With the move, Delta employees can no longer put any more contributions into the fund, or transfer money into it from other funds in their 401(k) plans.   Year-to-date, shares in the Atlanta-based airline have fallen more than 60%.  

US Trust was hired by the airline earlier this month to manage the fund. Previously, the stock fund had been managed by Delta’s board of trustees.

The move by the investment advisor comes as other firms are facing lawsuits from retirement plan participants claiming continued investment in company stock was a fiduciary breach.    Most notably, participants in Enron and Worldcom’s retirement plans filed suit, saying the executives alleged financial skullduggery ultimately harmed their retirement plan balances, much of which was concentrated in company stock (See  Settlements Reached in Enron S ,  Ebbers, WorldCom Executives Agree to $51M Suit Settlement ).

Earlier this month, participantsin W.R. Grace & Co’s 401(k) plan filed a class-action suit, alleging the company breached its fiduciary duty when it failed to sell or take other actions regarding the company’s common stock held in the retirement plan.   In the suit, the participants argue the company should have known that the company’s stock was a bad investment because of liabilities Grace was facing due to asbestos exposures claims, but those risks were never disclosed to participants in the company’s 401(k) plan (See  W.R. Grace K Plan Participants File Suit ).