Allocation of Class Action Recovery

[RCK]

We recently received payment of the plan's share of a class action settlement on our Company Stock. Although it is a nice payment, it only represents about one tenth of one percent of the Company Stock Fund.

The plan's recovery was based on its calculated loss, which was in turn based on net omnibus account level purchases over a period from 1999 to 2003 at a price higher than the specified trigger price. We could allocate the recovery to a participant level based on a calculation similar to that of the claim. But that raises the following issues:

- Many of the participants have terminated, and taken a lump sum. We could track them down but it would be expensive.

- The recovery was based on days with net trading activity resulting in a purchase over the trigger price. It was not based on participant level transactions.

- The cost of an allocation based on the original claim calculation would be very expensive.

So the decision on how to do the allocation is undoubtedly a fiduciary decision, but I am looking for ideas on what might be a reasonable, cost-effective approach.

[JanetM]

You didn't say if the sum was significantly large or anything. Couple ideas - based on idea that the sum, if allocated to all current participants , would not be large amount.

You could simply allocate prorata across all participants.

You could use the funds (plan doc allowing) to pay for communication campaign about the danger of company stock in plan.

You could (doc allowing) toss in forfeiture account and pay fees.

You could only allocate - prorata - to those participants in plan now who were affected during the 1999-2003 time period.

Just my thoughts....

[Kirk Maldonado]

You could check to see what people did with respect to demutualization proceeds. That seems like an analogous situation.

[Guest mjb]

On a per participant or per share basis how much will be recovered? You need to determine whether the amount of recovery for some participants will be less than the cost to process the recovery which may eliminate the need to send refunds.