Disney and the Frivolous 401 K Lawsuit
Disney is getting sued by an employee over the performance of one of the mutual funds in the company’s 401 K plan. The Sequoia Fund lost 2 billion dollars after one of the fund’s larger holding tanked. Here is what the lawsuit claims:
“The committee ‘clearly knew or should have known that the Sequoia Fund was an imprudent investment,’ the lawsuit said. ‘A prudent fiduciary would have recognized that….the Plan’s significant investment of employees’ retirement savings in the Sequoia Fund would inevitably result in devastating losses to the Plan and, consequently, to the Plan’s Participants’.”
If the committee had a crystal ball that worked and they refused to use it, then he might have a case. The judge should fine this employee for bad judgment. If you look at Morningstar, you will find that the fund is down -12.03% year to date. That is after the stock tanked. The 15 year track record beats the S&P 500.
Here are some “take-aways”
- As a mutual fund investor, at any given time, the investor should be able to withstand a loss of 15 to 20% because it does happen.
- There was nothing about the fund that created a red flag prior to the loss. In fact, their number one holding is Berkshire Hathaway – you know Warren Buffett’s Company? I am still looking for the red flag.
- I think that the most irritating thing about this lawsuit is personal responsibility. Please take some responsibility for your choices. Once again, without a crystal ball that works, a 401 K committee is going to have a tough time predicting the future. It would be different MAYBE if the company approved a mutual fund that was investing in some exotic international Zimbabwe Company that is run by tribes who make products by hand.
As an investor, you are responsible for the funds you chose. The committee didn’t hold a gun to the employee’s head and make them chose that fund.
- Finally, this would set a very bad precedent in the event that this case gets traction. These kinds of lawsuits would be coming out of the woodworks.
This is nothing more than a frivolous lawsuit that any respectable judge should not even entertain. This is about taking personal responsibility as an investor.
Bob Brooks is the host of the Prudent Money Radio Show and the president of Prudent Money Financial Services. Through his firm, he invests and manages investments for his clientele. To contact Bob, you can email Judy at Judy@prudentmoney.com to set a time.