Retirees Sue GE for Pension Plan Fiduciary Breach

The Troy, New York Record reports that the retirees claim GE’s stock was inflated from 1997 to 2001 because the company counted as earnings money that should have gone into the reserves – money in the bank to pay out claims – of the Employers Reinsurance unit of the company.

The lawsuit said that when GE tried to sell the reinsurance unit to Swiss Reinsurance, it had to put $9.4 billion into the reserves which drove the stock’s price down, according to the Record. The retirees, whose pension options included purchasing company stock, claim GE should have realized what ramifications its actions would have and had the obligation and duty as fiduciary to inform them of what it was doing.

The retirees claim they opted for stock that sold for $50 and it bottomed out at $35 because GE had to repay the insurance reserve.   The suit states 67.28%, $16.8 billion, of the company’s total retirement plan is in company stocks purchased by the employees, which are, in part, matched by GE, and management and the Board of Directors should have realized the trend would likely continue and the employees would continue to choose stocks as their pension option. With this in mind, according to the lawsuit, GE should have either fully disclosed what was going on in the reinsurance unit or stopped offering stocks as an option.

The suit also claims management had an inherent conflict in full disclosure because its compensation is tied to the stock’s performance and there are a substantial number of shares held in the pension plan.

The suit was filed as a class action, and estimates that the number of pensioners affected are, at a minimum, in the thousands.   GE denies the allegations.