Company permits employees' pension plan to invest in its overvalued stock: ERISA violation: Financial losses: Structured settlement

Law Reporter, Aug 2003

Kolarv. Rite Aid, Corp., U.S. Dist. Ct., E.D. Pa., No. 01-1229, Mar. 11, 2003.

Rite Aid Corporation owns and operates a chain of drugstores. The company maintained three employee benefit plans that invested employee contributions.

Between May 1997 and November 1999, Rite Aid allegedly inflated its earnings. The employee benefit plans purchased $37 million of Rite Aid stock during that period. When Rite Aid was required to restate its earnings in 2000, the stock was valued at $6 million. The employees who had participated in the plans suffered financial losses.

The employees brought a class action suit against Rite Aid, alleging the company had violated its fiduciary duties under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. [sec][sec] 1001 et seq., by permitting the benefit plans to invest in defendant's common stock when it was not a proper or suitable investment. Suit also alleged that defendant failed to disclose adequate information about its financial status, without which plaintiffs were unable to make informed investment decisions.

The parties reached a settlement in mediation with a present cash value estimated at $67.76 million. Defendant will pay $10.76 million in cash and will contribute $125 million in matching funds to the benefit plans during a four-year period. In addition, defendant agreed to structural changes in the administration of the benefit programs, including the appointment of an institutional trustee for the plans, among other things. Prudential Insurance Company, a third party administrator and recordkeeper, will pay $1.25 million in cash.

Plaintiffs' economics expert was Sophie M. Korczyk, Alexandria, Va.

Plaintiffs' Counsel

* Ronald S. Kravitz, San Francisco, Cal.

*Randall J. Sunshine, Santa Monica, Cal.

Steven J. Ross, Atlantic Beach, Fla.

Steven R. Fischer, Philadelphia, Pa.