[A-List] Ford settles stock suit; will offer financial advice to 150,000 retirees, employees
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Mon Aug 30 11:57:15 MDT 2010
Ford settles stock suit; will offer financial advice to 150,000
David Shepardson / Detroit News Washington Bureau
Washington -- Ford Motor Co. will provide free financial advice to
more than 150,000 retirees and employees, in agreeing to settle a
4-year-old shareholder lawsuit.
The current and former workers sued Ford because they said the
Dearborn-based automaker shouldn't have allowed them to invest so much
of their retirement funds in company stock through their 401(k) plans.
The proposed settlement, which must be approved by a federal judge,
will provide participants with free financial advice for four years.
Ford also will warn some employees and retirees with large amounts of
company stock that they should consider diversifying their portfolios.
Under the proposed settlement, Ford agreed that if it restores a
company match to retirement plans over the next three years, the
contribution will come in cash -- not Ford stock.
But in what amounts to a significant win for Ford, the company will
pay nothing to those who lost significant funds in retirement plans.
Ford didn't admit wrongdoing in reaching the settlement.
It will, however, pay $1.5 million in legal fees to the attorneys
representing the employee and retiree shareholders, and will cover the
costs of notifying individuals of the settlement.
In April 2006, some employees and retirees filed suit after they lost
more than $6 billion in company retirement plans because the company's
stock dropped dramatically between 2000 and 2006.
Ford argued that employees and retirees had ample opportunity to
manage their investments and that the drop in stock value -- from $30
a share to $6 a share -- mirrored the decline in the U.S. auto
Under the settlement awaiting the approval of U.S. District Judge
Stephen J. Murphy III in Detroit, Ford will pick the source of its
online financial advice by the end of the year and offer it to
retirees and employees soon after.
The free services may include: "online investment advice, an annual
retirement evaluation, company stock allocation analysis, savings rate
analysis, (and) specific investment advice," the settlement agreement
Ford will send notices to active participants whose Ford stock
holdings exceed 20 percent of their total plan assets, warning them of
the risks of holding too much company stock.
The notice will remind participants that "spreading assets among
different types of investments can help achieve a favorable rate of
return, while minimizing the overall risk of losing money," and "the
Department of Labor suggests that an investment of more than 20
percent in any single company may result in a non-diversified
In 2000, Ford employees held 196 million shares of company stock worth
$10.5 billion. By Dec. 31, 2006, the amount of Ford stock in the plans
had grown by 57 percent, to 308 million shares, but had decreased in
value by 78 percent to $2.3 billion.
But Ford employees have benefitted from the recent run-up in Ford's
stock, which had fallen under $2 a share, and is now worth $11.46 a
share, as of early afternoon trading today on the New York Stock
Salaried and hourly employees and retirees saw the value of company
stock held in retirement plans rise from $722 million at the end of
2008 to $2.7 billion at the end of last year.
If Ford employees and retirees still held the 270 million shares they
owned at the end of 2009, they would be now worth $3.1 billion -- up
another $400 million this year.
Ford's turnaround is one reason lawyers for the retirees and employees
are settling the case without collecting any money for retirees or
"As the result of improved market conditions, Ford's fortunes have in
large part turned around," Derek W. Loeser, a lawyer for the
shareholders, wrote in a legal filing. Ford could argue that the
claims "may be substantially reduced or eliminated in their entirety."
The settlement covers any employee or retiree who owned Ford stock in
a plan at any time between April 15, 2000, and today, along with
spouses and other beneficiaries.
Previously, Ford made matching contributions to retirement funds in
Ford stock. Until 2004, company policy barred participants from
transferring matching contributions to another investment.
In 2006, Ford amended its retirement plans to add an independent
fiduciary, unrelated to Ford, to determine "from reliable public
information that there is serious question concerning the company's
short-term viability as a going concern." If so, it could direct the
Ford stock be sold.
Several other companies have settled similar lawsuits in recent years,
including then-General Motors Corp.
GM settled a similar case for $37.5 million in 2008 and offered
employees heavily discounted financial advice. The GM payout is one of
the largest dating back to 2005, when Kmart agreed to pay $11.75
million to about 150,000 employees and retirees.
dshepardson at detnews.com (202) 662-8735
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