When employers provide employees retirement benefits, they must follow guidelines set by the Employment Retirement Income Security Act ("ERISA"). According to the law, employers are fiduciaries when they provide retirement plans, and thus must act in their employees' best interest. A 401(k) is a type of retirement plan, set up by employers, that allows employees to invest a portion of their salaries, tax deferred, into investments products such as stocks or mutual funds.
In 2014, Roberto Ramirez, a former employee of JC Penney Corporation, Inc. ("JC Penney" or the "Company"), accused JC Penney of violating ERISA. Allegedly, the Company's executives made misleading statements about the JC Penney's financial condition, which inflated its stock price. Because the retirement benefit plans were heavily invested in JC Penney's stocks, the misstatements caused major losses for participants in the benefit plans.
When the Company was in the midst of a turnaround effort, its hedge fund manager, Bill Ackman ("Ackman"), took a significant position in the Company and pushed for Apple Inc.'s former executive, Ron Johnson ("Johnson"), as the new chief executive. Johnson implemented drastic changes, which allegedly had no basis in research or reality and made the Company's financial situation worst. Nonetheless, Ackman and Johnson ensured investors that JC Penney was on the right track. Despite their assurances, they were eventually blamed for losing $350 million from the benefit plans.
On January 4, 2017, Judge Robert W. Shroeder III gave preliminary approval to a $4.5 million settlement between JC Penney and the preliminary certified class of participants and beneficiaries of retirement plans that included the Company's stock.
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Akinnibi, Fola. "JC Penney Wins Initial OK For $4.5 ERISA Deal," Law360. Last modified on January 4, 2017.