Administration September 9, 2003

State Street Slaps Agway With Company Stock Suit

September 9, 2003 (PLANSPONSOR.com) - Acting as in independent fiduciary for participants in the company stock part of Agway's 401(k) plan, State Street Bank & Trust has charged Agway executives, board members and others with breaching their ERISA fiduciary duties.
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The federal court suit charged that the managers of the Agway 401(k) Thrift Investment Plan overvalued and overpaid for company stock they purchased for the plan including Agway preferred stock and money-market certificates, according to a Syracuse Post-Standard story.

The State Street suit names nearly 50 defendants including Agway executives and board members, along with members of the plan’s administration and investment committees and Boston Safe Deposit Trust.

An Agway spokesman denied any wrongdoing to the Post-Standard. Agway officials think the actions taken by the board and employee benefits committee with respect to the 401(k) company security fund have been reasonable and prudent, said Stephen Hoefer. Agway expects those named in the complaint will be vindicated in court, he said.

The lawsuit charges the plan’s fiduciaries with violating ERISA by:

  • failing to adequately investigate the fair market value of Agway securities before buying them and substantially overpaying for them
  • grossly overstating the value of Agway securities and misrepresenting the value of the securities and misrepresenting the risk associated with investing in them
  • failing to investigate and continuing to allow 401(k) plan participants to invest in the company security fund even after it became unreasonable, and then failing to sell or redeem those securities.

Court papers claim that as Agway began experiencing financial troubles, it began “relying almost exclusively upon the predictable cash flow associated with the sales of securities to the plans and others as its primary source of financing ongoing operations.”

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The lawsuit contends that written quarterly reports about the fund given to plan participants often contained statements designed to induce them to invest in the security fund by unduly promoting the benefits and understating the risk.

The company stock fund paid annual returns over five years of 7.84% as of December 31, 2001. Agway provided a 10% guaranteed match on the first 6% of an employee’s earnings contributed to the 401(k) plan. At times, Agway also contributed additional percentages.

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