Judge OKs IKON CoStock Settlement

August 14, 2002 (PLANSPONSOR.com) - A company's 401(k) plan will be revamped to allow participants to invest in options other than company stock with employer matching funds.

Redrafting the rules for IKON Office Solutions Inc.’s 401(k) plan was part of a settlement of an ERISA class action lawsuit with charges against management that are now heard so often, they’ve become a mantra of corporate misdeeds. Namely: IKON management was accused of imprudently encouraging participants to load up too heavily on stock in their K plan accounts.

The deal as approved by Senior US District Judge Marvin Katz also kills a restriction that participants had to hold their IKON stock at least until they were 55. Katz was assigned under the multidistrict litigation program to handle all of the lawsuits that stemmed from IKON’s 1998 restatement of its earnings and the subsequent plunge of its stock price from $30 to a low of $2.

In the latest ruling, Katz said he was very conscious of the fact that the IKON deal included no damage award, but ultimately decided that shouldn’t be a deal breaker. “This settlement is indeed fair, adequate and reasonable, despite the fact that it does not include any monetary payment, Katz wrote, according to the Legal Intelligencer.

Valuing Diversity

He said there was real value in the freedom to diversify, and that, over the years, it is likely to be worth “tens of millions” to the employees. Katz also found there were good reasons for the workers to pursue rewriting their 401(k) plan instead of making a trip to the bank.

Under the new plan, IKON will lift the age restriction, and will permit workers with at least two years of service to direct their employer match contributions to any of the plan’s investment options.

To protect against any stock price decline that a sudden, massive disinvestment by plan participants might cause, the redirection of employer contributions already made is subject to a vesting schedule and to temporary limitations on diversification that the retirement plans committee concludes are “reasonably necessary.”

Another component of the settlement is designed to cure alleged conflicts of interests. It calls for two independent advisors to be appointed to the retirement plans committee.

Now an adviser will review all educational materials related to diversification and make recommendations if the materials insufficiently communicate the merits of diversification. The second adviser will report periodically on the performance of the investment options offered.

The battle between IKON participants and the company has a long and colorful history.

For example, at one point In November 1999, Katz approved a $111 million settlement of a shareholders’ suit and a $5 million settlement of a derivative suit. At the time, it was the largest settlement of a shareholders’ suit in the Eastern District of Pennsylvania.

Katz later awarded the plaintiffs’ lawyers on those cases more than $32 million in fees, saying he rejected the recent trend among judges to slash fees in big cases and that it made perfect sense to pay the lawyers a full 30%.