A suit filed in federal court against Home Depot charges that the hardware giant permitted mismanagement of retirement funds affecting more than 200,000 people and costing their accounts at least $140 million.
The complaint against the $100 billion-a-year, Atlanta-based company was filed last week in U.S. District Court in Atlanta by attorneys for Jaime Pizarro and Craig Smith. But the plaintiffs aim for class action status, which would mean inclusion of every employee and former employee affected.
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The key allegations involve investments chosen for $6.5 billion in the Home Depot pool that provides retirement payments to former employees. The plaintiffs argue that those investments, which are supposed to keep those savings growing as robustly as possible, have instead been consistently placed with funds that do not perform well.
The result is a retirement pool that doesn’t grow the way it should, said Charles Field, a San Diego-based partner in the firm of Sanford, Heisler, Sharp. “They see the market is up 40 or 50 percent and they look at their 401(k) and see that it is not up as much or maybe it’s even down and they think: What is going on here?”
Home Depot spokesman Stephen Holmes declined to comment on the substance or specifics of the allegations, limiting the official response to a general endorsement of the company’s retirement plans.
“We’re proud of the financial support and the opportunity for savings that we provide our associates,” he told the AJC.
Atlanta attorney Darren Penn said that class actions suits can be costly, complex and time-consuming.
In general, he said, defendants start by asking for dismissal of the suit, and if that doesn’t succeed, they will argue that the complaint does not deserve class action status. If the judge disagrees, the stakes go up dramatically – and, at that point, both sides might consider some kind of settlement, he said.
The plaintiffs could have filed in any jurisdiction where Home Depot does business, not just in the city where the company has its headquarters. But the judges and clerks here have seen this kind of complicated case before, he said. “The bench here is very well equipped to handle class action suits. They absolutely know what they are doing.”
Field said that the plaintiffs both live in California, but are not making themselves available for interviews. One is still a participant in the Home Depot retirement plan and one is not. A former employee’s participation can end when he transfers the money to another plan or cashes out and takes a lump sum.
Among the attorneys listed as representing the plantiffs is Paul Jay Pontrelli of the Atlanta firm Byrne, Davis and Hicks.
Over the years, the Home Depot retirement investments were funneled into about 20 different funds, most of which brought lower-than-average returns, Field said.
“Somebody makes a bad investment – one year, two years – and you can’t fault them for that.” he said. “But when it is three, four, five or more years, you begin to wonder, what were they thinking?”
The suit also charges Home Depot with paying exorbitant fees to a company called Financial Engines, which was supposed to offer employees investment advice. The guidance given was provided by robotics, the plaintiffs charge.
Brightscope, a financial company that rates company retirement plans, puts Home Depot below average for its peer group and just behind hardware competitor Lowes. Among other companies with better ratings were Costco, Walgreen and Target.
The Home Depot suit is large, but nowhere near the largest such suit involving a company’s retirement accounts.
A suit against General Electric, for instance, has alleged damage of more than $700 million for mishandling of retirement accounts. That case – also filed by Sanford, Heisler, Sharp – is still in the courts.
In 2007, Sandy Springs-based UPS agreed to an $87 million settlement of a class action suit in which union drivers had charged the company with forcing them to work off the clock.
The complaint against Home Depot argues that the company owes the plaintiffs the difference between the funds’ performance and the performance it should have had. That gap is at least $140 million, Field said, but the exact number would be determined after hearing expert testimony at a trial.
“We think that’s a lower number,” he said. “We think it could be higher than that.”
Each employee that worked an entire career at Home Depot would retire with $100,000 less than they should have in their accounts, according to Brightscope.
The company makes the investment choices, Field said. “The retirement fund is overseen by an investment committee, but we don’t know who is on that committee.”
Home Depot’s responsibility is clear, he said: Since Home Depot is managing funds for employees, it has a fiduciary responsibility to get the best possible results.
“Employees trust their employer to construct a decent plan that will allow them to retire at some time in their lives,” Field said. “The law says that a fiduciary duty is the highest duty under the law. They have to be absolutely loyal to their employees and we are asking for them to be compensated for their low.
“What we are after is to get justice for all the employees in the plan.”
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