Sprint Hit With 401(k) Plan Suit

May 1, 2003 (PLANSPONSOR.com) - A federal court lawsuit over retirement-plan losses charges that Sprint Corp. did not adequately protect participants from risky investments in its own company stock.

The lawsuit seeks compensation for a drop in value of some 401(k) plans at the company, which it claims were overly invested in Sprint shares, Dow Jones reported. According to the suit, filed in U.S. District Court in Kansas, Sprint shouldn’t have given participants the option to select as 401(k) investment options a fund that held Sprint FON stock and another that held Sprint PCS stock.

Sprint employees who participated in the administration of the retirement plans “breached their fiduciary duties by permitting the Plans to offer the Funds as investment options and to invest the Plans’ assets in the Funds while those funds were not prudent investments,” the suit argues.

It was “imprudent” for plans to “invest more that $3.5 billion and over 60% of their assets in the Funds which became speculative, high-risk investments,” the suit states.

The company was quick to defend itself. “We strongly disagree with the allegations,” Sprint spokeswoman Melinda Tiemeyer, told Dow Jones. “It’s a defined-contribution plan, so all of the participants have total discretion over the funds they contribute. Our 401(k) has 29 different options, and (participants) are under no obligation to purchase Sprint stocks.”

For most of its history, Sprint had a relatively conservative investment-risk profile, according to the suit. Providing local and long-distance telephone services and publishing telephone directories was “a secure enterprise.”

But when its traditional voice business became increasingly risky as long- distance rates dropped, Sprint shifted its business to “unproven new markets and expensive new technologies.” Sprint stock — and hence the stock funds that fed the 401(k) plans in question — became high-risk investments as a result, the suit charges.