Benefits professionals are familiar with ERISA’s and tax laws’ impact on retirement savings plans. But, securities law? What happens when your retirement savings plan becomes an "affiliate" of your company?

The company (Caliber Systems, Inc.) divested itself of Roadway Express, Inc. and created a wholly owned subsidiary. As part of the transaction, Caliber established a new 401(k) plan for Roadway employees by transferring assets from the stock purchase plan and their existing 401(k) plan to the new 401(k) plan. As a result, the plan owned more than 10% of the company’s outstanding shares. This ownership position deemed the plan an "affiliate" of the company.

Caliber’s stock dropped dramatically from $34/share to $17/share. Roadway 401(k) participants redirected their investments out of company stock as plan provisions permitted. Since the plan was an "affiliate," federal securities law limited the number of shares that may be sold within a given period. The company could not carry out the diversification requests of plan participants.

Participants filed suit (Hunter vs. Caliber Systems, Inc.) charging breach of fiduciary duty.

Although the 6^th Circuit Court of Appeals ruled in favor of the Company, the Hunter case is a reminder of issues with including company stock in your 401(k) plan. Consult securities law counsel to review the impact of this and other securities law on your plan.