Bank settles class action lawsuit over 401(k) investments for $3M
Two East Coast law firms have announced a $3 million preliminary settlement in a class action lawsuit charging a Michigan-based bank with violation of the federal Employee Retirement Income Security Act.
Flagstar Bank has agreed to make a $3-million payment to its 401(k) plan, according to Stull, Stull & Brody of New York and Izard Nobel LLP in Connecticut.
Troy-based Flagstar Bank operates 111 branches throughout West Michigan and the state.
The ERISA fiduciary responsibilities of companies with 401(k) retirement plans requires a company “to act in the best interest of their employees.”
The suit on behalf of former and current employees of Flagstar Bank alleges that Flagstar breached its fiduciary duties under ERISA, by allowing investments in its own stock for the employees 401(k) for several years during and after the Great Recession, “when they allegedly knew or should have known that such investment was imprudent,” according to a Stull, Stull & Brody announcement.
An amicus brief filed by the U.S. Dept. of Labor, which oversees ERISA compliance, said Flagstar Bank failed to divest its 401(k) of its own stock “as Flagstar suffered huge losses due to its many non-performing mortgages.”
The brief states that “from early 2007 to mid 2010, the stock lost 95 percent of its value.”
A spokesperson for Flagstar Bank said this morning the bank does not comment publicly on legal matters.
A Dec. 3 hearing has been set for the U.S. District Court for the Eastern District of Michigan, to consider whether the settlement should receive final approval.
Flagstar Bank is the largest bank headquartered in Michigan, with more than $12 billion in assets. Its website states that Flagstar is the among the nation’s largest originators of residential first mortgages, offering mortgages in 17 states.