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Release Date: October 16, 2006
Release Number: 06-1797-NAT
Contact Name: Gloria Della/Peter Hong
Phone Number: 202.693.8664/202.693.4676
New York, New York - The U.S. Department of
Labor has sued the fiduciaries of the Agway Inc. 401(k) plan, in DeWitt,
New York, for imprudently investing approximately $50 million of the
plan’s assets in the securities of the company, valuing the stock at
prices higher than market value, and giving participants false
information about the investment.
“The workers in this case were betrayed by those
entrusted to administer and oversee their 401(k) plan,” said Secretary
of Labor Elaine L. Chao. “With this lawsuit, the Department of Labor
seeks full restoration of the 401(k) plan so that the workers’
retirement dreams are not destroyed by the gross mismanagement of their
retirement funds.”
According to the lawsuit, 47 members of the
investment committee, administration committee and the Agway board of
directors violated the Employee Retirement Income Security Act (ERISA).
The investment committee allegedly failed to investigate the prudence of
investing in Agway securities, to determine the fair market value of
securities acquired by the plan, and to monitor and divest the plan’s
holdings in the securities. As a result, the department alleges the
defendants caused the plan to incur substantial financial losses. They
also allowed the plan to purchase and hold securities at prices that
exceeded fair market value. The value of stock purchased and held by the
plan was set by Agway. Until July 2002, all contributions made by Agway
were required to be invested in employer securities.
In addition, the suit alleges that the administration
committee allowed Agway and the plan to provide false and misleading
information to plan participants about investments in Agway securities,
and that the board of directors failed to protect the interest of
participants and beneficiaries when they failed to oversee the
activities of plan fiduciaries.
The suit seeks a court order requiring the defendants
to restore to the plan all losses with interest and to forfeit any plan
benefits if all losses suffered by the plan are not restored. The
Department of Labor’s lawsuit was filed in U.S. District Court for the
Northern District of New York.
Before filing for Chapter 11 bankruptcy in October
2002, Agway Inc. was a cooperative that provided agricultural products
and services to member farmers and other customers through its
subsidiaries. The 401(k) plan covered 4,080 participants as of June 30,
2002. The plan held approximately $48 million in Agway securities and $2
million in cash reserves. An independent fiduciary, Fiduciary Counselors
Inc., was appointed in 2004 to manage the plan.
The suit resulted from an investigation conducted by
the New York regional office of the Labor Department’s Employee
Benefits Security Administration (EBSA). In fiscal year 2005, the
department achieved monetary results of $1.7 billion in pension, 401(k),
health and other benefits for millions of American workers and their
families.
Employers and workers can contact the EBSA office in
New York at 212.607.8600 or toll-free at 1.866.444.EBSA (3272) for help
with problems relating to private-sector pension and health plans.
(Chao v. Magnuson)
Civil Action No. 5:06-CV-1199
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