Hartford Employees Sue Company Over Retirement Plan

Dec. 12, 2008 – The Hartford Financial Services Group has been hit with two class action lawsuits over the company’s recent sudden stock decline and its detrimental impact on the insurer’s employee retirement plan. The lawsuits accuse company officials of a fiduciary breach by continuing to have company stock as a retirement plan investment option after it was no longer prudent due to the firm’s subprime mortgage exposure.

In the two federal court suits filed last week in Connecticut, employees Denise Jump and Joe DeSalvo claim having company stock in the retirement plan was no longer appropriate because of the company’s heavy exposure to mortgage-related asset, which include investments in bankrupt or nearly bankrupt Fannie Mae, Freddie Mac, Lehman Brothers Holdings, Washington Mutual and American Insurance Group.

The complaints say in 2007 the Hartford’s retirement plan held more than $650 million worth of Hartford common stock, which made up 21.4 percent of the plan’s total assets. The two suits allege company officials violated the federal Employee Retirement Income Security Act by keeping the company stock option even though they knew or should have known the Hartford’s stock price was artificially inflated and that company officials improperly issued investor statements contrary to their actual exposure to the subprime mortgage market.

According to the complaints, Hartford’s stock traded for up to $106 while the company continued to report positive earnings but plunged to about $10 by Oct.31 upon news of the company’s losses tied to the subprime mortgage market. The suits also say the decision by Hartford officials to take on more risk in the subprime mortgage market reduced the earnings and capital needs of its variable annuity businesses, which resulted in further declines in the Hartford’s stock price.

The lawsuits say the defendants failed to conduct an appropriate investigation into whether Hartford stock was a prudent investment to the company’s retirement plan. The lawsuits also allege the defendants violated their fiduciary duties by failing to develop appropriate investment guidelines for Hartford stock.

The suits also allege the defendants failed to act appropriately by retaining company stock in the retirement plan and offering it as an investment option when they should have known or did know the stock was a bad risk. Attorneys for the plaintiffs say Hartford officials should have discontinued plan contributions toward Hartford and consult with independent fiduciaries over whether or not to include company stock as a retirement plan option. The suits also say the officials should have resigned as fiduciaries of the plan.

“Defendants continued to invest and to allow investment in the Plan’s assets in Company stock even though they knew or should have known that Hartford would require additional capital to remedy its risky exposure to the credit and subprime mortgage markets, and the deterioration of its capital, resulting in a decrease in the value of Hartford stock,” the complaints said.

The latest lawsuits come on the heels of another lawsuit filed Nov. 12 by another Hartford employee who also alleges the Hartford officials breached their federal fiduciary duties by concealing the insurance company’s exposure to losses in the subprime mortgage market from its employees.