Apogee Enterprises, a Minneapolis-based glassware manufacturer, charged that the investment decisions State Street made regarding the bond fund represented breaches of State Street’s fiduciary duties under the Employee Retirement Income Security Act (ERISA) that ended up costing its 401(k) plan more than $5 million.
According to the suit, State Street touted the Daily Bond Market Fund as a conservative, stable, risk-controlled, well-diversified option for Apogee’s 401(k) plan, but changed the fund’s strategy during 2006 to take on significantly more risk. Apogee alleged that State Street applied leverage in making the investments in subprime mortgage-backed securities, which had the effect of adding greater risk to the fund.
State Street misled Apogee about how long it would take for Apogee’s 401(k) to get out of the Daily Bond Market Fund, the company charged. State Street allegedly told Apogee that it would take 60 to 90 days when, in fact, other plan sponsors were able to get out of the fund with 48 hours notice.
The suit said Apogee hired State Street in 1999 as trustee, administrative services provider, and investment manager. Eventually, both State Street and CitiStreet performed services for the Apogee plan.
According to the complaint, 27.29% of the Daily Bond Market Fund’s assets were invested in mortgage-backed securities as of July 31, 2007. From January 1, 2007, to August 24, 2007, the Daily Bond Market Fund lost 20.86% of its value.
Apogee estimates that the fund lost approximately 12.5% of its value between August 9, 2007, when it asked to withdraw from the fund, and August 30, 2007, when it was finally allowed to exit the fund.
The case is Apogee Enterprises Inc. v. State Street Bank and Trust Co., D. Minn., No. 09-cv-00170-DSD-FLN.
A Massachusetts plumbing and air conditioning supply company sued State Street in August 2008 over similar allegations (See Bay State Sponsor Sues State Street over Mortgage-Backed Investments ).