Former Employee Has no Standing in Company Stock Suit

October 27, 2006 (PLANSPONSOR.com) - The US District Court for the Eastern District of New York ruled that a 401(k) plan participant who chose not to elect company stock as one of her 401(k) plan investments cannot bring a complaint against her employer for mismanagement of the plan with regard to the company stock.

Judge Leonard Wexler wrote in his opinion that f ormer New York Community Bancorp (NYCB) employee Brenda Greenblatt had no standing for her claim, because she never elected to buy company shares with her 401(k) money, and therefore was excluded from the  “group she defines as injured as a result of the alleged breach of duty.” It was only those who elected to include company shares as an investment option for their 401(k) accounts who can claim injury for the “allegedly ill-informed choice to include NYCB stock as part of their portfolio,” the court said. The court also decided Greenblatt did not have standing to bring a claim against her employer because she was no longer a plan participant since she had cashed out her 401(k) account when she terminated from the company.

Greenblatt claimed her employer breached its fiduciary duties under the Employee Retirement Income Security Act (ERISA) by failing to provide 401(k) participants who had elected to invest in company stock with “timely, accurate and complete information.” She claimed that her plan assets were reduced as a result of this failure.

Greenblatt claimed she had standing because she also participated in an employee stock ownership plan (ESOP), which afforded her company shares. However, the court rejected this claim, ruling that her “ownership of company shares, by virtue of her participation in the ESOP is insufficient” for standing.

The court pointed out that the 401(k) plan and ESOP are separate. The 401(k) plan gave participants various investments options, one of which was company stock, while the ESOP was invested only in NYCB company stock. “Participants in the ESOP, unlike those in the [401(k)] Plan, cannot choose among a variety of investment options,” Wexler wrote.

Greenblatt was hired by Haven Bank in February 1999, and was employed by the bank when it merged with NYCB in 2000. Two years following the merger, she enrolled in the 401(k) plan and did not choose company stock as one of her investment options.

Caltagirone v. New York Community Bancorp, E.D.N.Y., No. CV 04-4872 (LDW), October, 25, 2006.

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