Administration December 5, 2003

Participant Says Plan Sold Stock Too Soon

May 24, 2002 (PLANSPONSOR.com) - An R.J. Reynolds Tobacco (RJR) employee has sued his employer, claiming the firm's 401(k) administrators sold stock holdings at a loss without considering the best interests of the plan participants.

Reported by

Nevin E. Adams

A June 1999 corporate spin-off separated the Nabisco food business and R.J. Reynolds, making them unrelated companies.

Sell Low?

The lawsuit, which is seeking class action status, charges that the firm and plan administrators breached their duty as fiduciaries of the 401(k) plan by selling at a loss stock held in Nabisco foods in January 2000 after the split between the tobacco and food businesses of the former R.J. Reynolds Nabisco company – even though market analysts recommended buying or holding the stock.

“This was a serious breach of fiduciary duty because the interest of the employees was considered not at all in the decision to sell the Nabisco stock,” said Jeffrey Lewis, one of the plaintiff’s lawyers.

The suit notes that six months after the plan’s sale, Nabisco Group Holdings common stock sold for approximately $30/share, over three times the price the 401(k) plan sold it for on January 31, 2000, while Nabisco Holdings Corporation common stock sold for approximately $55 per share, nearly twice the price the Plan sold it for on January 31, 2000.

Early Warning?

R.J. Reynolds said in a statement that Nabisco funds were discontinued as Capital Investment Plan (CIP) options on Jan. 31, 2000, following the June 1999 spin-off. Traditionally, its 401(k) plan had not offered single-stock investment funds of unrelated companies. On several occasions before and after the Nabisco spin-off, CIP participants were informed that the Nabisco funds would be eliminated, the statement said, according to Reuters.

Plan participants had the opportunity to redirect their Nabisco fund investments into any other CIP investment fund prior to the elimination of the Nabisco funds, R.J. Reynolds said. Participants were also informed that any Nabisco investments remaining in the plan on Jan. 31, 2000, would automatically be directed to the plan’s Interest Income Fund.

The case, entitled Tatum v. The R.J.R. Pension Investment Committee of the R.J. Reynolds Tobacco Company Investment Plan, et al., was filed May 13, 2002, in federal court in Greensboro, North Carolina.

Plaintiffs have set up a web site