GM settles funds suit for $39M
GM settles funds suit for $39M
Current employees and retirees sued to recover funds lost when stock in 401(k) plans was devalued.
David Shepardson / Detroit News Washington Bureau
WASHINGTON — General Motors Corp. has agreed to pay about $39 million to settle a class-action lawsuit brought by employees and retirees for claims involving company pension and retirement funds, according to people familiar with the deal.
Employees and retirees will split more than $25 million to defray losses sustained when company stock held in 401(k) plans lost value. The remainder will be split among the three law firms representing employees and retirees, the people said.
The precise figures were still being negotiated Tuesday by GM’s outside lawyers.
The lawsuit, which was filed in 2005, charged that GM invested too much of its own stock in employees’ retirement funds. The suit came as the automaker was struggling financially and its accounting was being reviewed by the Securities and Exchange Commission.
As part of the deal, retirees will be offered heavily discounted financial counseling services from Ayco, a subsidiary of Goldman Sachs, people familiar with the deal told The Detroit News. In total, the financial counseling services, which typically are offered only to senior executives, are valued at $15 million. GM spokeswoman Renee Rashid-Merem said Tuesday the company expected a settlement agreement to be filed in the next few days.
"There is a document that people are working on," she said, adding that it would be premature to comment on the specifics until the settlement is filed in U.S. District Court in Detroit.
Lawyers for the employees and retirees declined to comment on the settlement until it is filed.
At issue in this case is whether GM "breached their fiduciary duties of prudence and loyalty by allowing, encouraging and maintaining a significant portion of the plans’ asssets in GM stock," according to a court filing.
A 1974 federal law, the Employee Retiree and Income Security Act, imposes strict requirements to ensure employers invest retirement funds wisely.
In the settlement, GM has also agreed to keep in place structural changes it made to its 401(k) plans. Since 2007, GM stopped automatically making matching contributions in GM stock. Instead, GM gives employees matching contributions based on their investment selections.
About 260,000 employees and retirees were participants in the plans that held assets of $21 billion as of 2003, according to court documents. The plans, with more than $5 billion in GM stock, lost hundreds of millions of dollars when the value of GM shares sank by more than 75 percent, from about $95 a share during the time period covered by the class action to Tuesday’s closing price of $23.30.
Lawyers for both sides told U.S. District Judge Nancy Edmunds they had reached a settlement during a Dec. 13 conference call, court records show. She issued an order requiring them to file the proposed settlement by Jan. 15 and set a Jan. 30 hearing to grant preliminary approval to the deal.
The lawsuit filed in March 2005 said GM had "failed to take any meaningful steps to prevent the plans from suffering losses as a result of the plans investment in GM stock and the company’s matching contributions in GM stock."
"That’s a creative settlement," said Peter Henning, a Wayne State University law professor and former SEC attorney. "Hopefully it helps employees make better investment decisions and convinces them to plan and diversify their portfolio."
GM currently has 220,000 employees in its 401(k) plans, including 86,500 salaried employees, with assets of $20 billion, spokeswoman Brenda Rios said. On Jan. 1, GM increased its match for its 401(k) plans from 50 cents on the dollar to $1, up to 4 percent of an employee’s salary, Rios said.
Because of tax law, retirees and current employees will see their retirement accounts boosted, but won’t get any cash. They won’t be able to withdraw the money without penalty until they are eligible for retirement.
The GM payout is one of the largest of five recent settlements dating back to 2005, when Kmart agreed to pay $11.75 million to about 150,000 employees and retirees.
In September, Delphi said 40,000 employees and retirees will split a $47 million settlement for money lost in company stock in retirement plans. That settlement is awaiting final approval by a federal judge.
Last year, Federal-Mogul Corp. agreed to a $12.75 million settlement of similar claims. About 12,300 employees and retirees are splitting $8.9 million, after attorneys’ fees. In March, a judge approved a settlement for 10,000 Visteon Corp. employees, who split $5.5 million.
The pool of GM people covered has not been detailed but is likely to be any one enrolled in the 401(k) plans between March 1999 and May 2006.
GM faces several investigations by the SEC, which largely formed the basis of the lawsuit. The SEC investigations are reviewing GM’s accounting for its pension and other post-employment benefit liabilities, its restatement of supplier credits from 2000-2004, GM transactions involving precious metals used in auto production, and GM’s guarantee of certain employee benefits at Delphi.
The investigation into questionable transactions at GM stemmed from a probe into transactions at Delphi Corp., GM’s former parts unit. The SEC opened its GM investigation in September 2005 seeking information about Delphi transactions.
The SEC investigations into GM are continuing. In November, the Justice Department said it would not bring any criminal charges in the Delphi case.
In October 2006, the SEC filed civil charges against Delphi and nine former employees, accusing them of accounting fraud and other securities violations. The agency also charged three executives from companies that did business with Delphi.
Six of those charged agreed to settle the civil allegations as did Delphi.
Separately, a lawsuit brought by employees and retirees against Ford Motor Co. is awaiting trial.
Between April 15, 2000, and August 2007, Ford employees and retirees lost more than $6 billion in company retirement plans as a result of the steep decline in the share price of company stock, which dropped from more than $30 to $6 a share.
Lawyers for the employees and retirees say Ford should have known it was an imprudent investment.
Most of the money was in 401(k) plans; participants were barred from transferring to another investment until 2004.
In June, Ford asked U.S. District Judge Paul Gadola in Flint to dismiss the case. The request is still pending.
GM contributions
On Jan. 1, GM upped its matching contribution for 401(k) plans to equal an employees first 4 percent of salary, up from 50 cents for each $1 contributed up to 4 percent for salaried plans.
In 2006, GM suspended its $0.20 match per dollar up to 6 percent, in the midst of financial woes
