DOL Recovers $8.6 Million for Workers Hurt by Agway’s Risky Securities

The Department of Labor recovered almost $8.6 million for workers who participated in the 401 (k) plan of an agricultural cooperative that invested employee money in the company’s overpriced securities. The Department restored the money to participants of the Agway Inc. 401(k) plan in DeWitt, N.Y., and barred plan officials and the board of directors from service to employee benefit plans for one to two years unless they complete fiduciary training. The defendants also agreed to pay a civil penalty of $859,000 plus interest to the Labor Department.

"This $8.6 million recovery is a victory for the workers whose retirement savings were grossly mismanaged," said Secretary of Labor Elaine L. Chao.

The department's lawsuit resolved by this settlement alleged that 47 members of the investment committee, administration committee and the Agway board of directors violated the Employee Retirement Income Security Act (ERISA) by allowing the 401(k) plan and its participants to invest in overpriced securities of Agway. The investment committee allegedly failed to investigate the prudence of investing in Agway securities, to determine the fair market value of securities acquired by the plan (which was set by Agway), and to monitor and divest the plan's holdings in the securities.

In addition, the administration committee allegedly allowed Agway and the plan to give false and misleading information to participants about the investments in Agway securities, while the board of directors failed to oversee the activities of plan fiduciaries.

Agway Inc. filed for Chapter 11 bankruptcy in October 2002. The 401(k) plan covered 4,080 participants as of June 30, 2002. The plan held approximately $48 million in Agway securities and $2 million in cash reserves. An independent fiduciary, Fiduciary Counselors Inc., was appointed in 2004 to manage the plan and brought its own separate lawsuit.

The settlement, entered in the U.S. District Court for the Northern District of New York, was investigated by the Boston Regional Office of the Labor Department's Employee Benefits Security Administration (EBSA).

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