Pfizer Sued By Employees Over Retirement Plans
6 CommentsBy Ed Silverman // January 27th, 2012 // 9:46 am
Between 2000 and 2009, Pfizer stock did not fare so well. As this chart indicates, the shares began the decade hovering around $45, but then dipped to below $14. And so a group of Pfizer employees have filed a lawsuit against the drugmaker, claiming their retirements plans took a beating because these held a disproportionate amount of Pfizer stock.
During that stretch, you may recall, Pfizer paid big bucks to swallow up some of its biggest rivals - Warner-Lambert and Pharmacia - in order to gain some key medicines. But the Pharmacia deal, in particular, was followed by controversy over the safety of the Celebrex and Bextra painkillers, which were similar to Vioxx. Bextra, in fact, was eventually withdrawn from the market.
The employees also argue that Pfizer stock was hurt by sales and marketing practices that eventually resulted in a $1.2 billion fine paid and a felony plea to settle an investigation into what the US Department of Justice called fraudulent marketing of several drugs. And so, the employees say Pfizer officials breached their fiduciary by not recognizing the extent to which these developments, among others, were significantly contributing to a significant loss in value of Pfizer stock and their plans.
The “defendants knew or should have known that Pfizer stock was an imprudent investment at all times during the… class period, because the company was engaging in undisclosed risky and improper activities in relation to its prescription drugs, including Celebrex and Bextra, which artificially inflated the value of company stock,” according to the lawsuit, which was filed in federal court in Puerto Rico.
More specifically, the employees say that there was an “over concentration” of Pfizer securities held in various retirement plans managed by the drugmaker and its proxies. As an example, as of December 31, 2006, the Pfizer Stockholder Plan for employees in Puerto Rico had total assets of approximately $83.6 million, of which approximately $48 million was invested in Pfizer common stock. That works out to roughly 57 percent. This plan, by the way, was just one of several employee retirement plans that were cited in the lawsuit as holding similar proportions of Pfizer stock and suffering subsequent losses.
“This investment strategy proved to be disastrous. When information emerged publicly in 2004 concerning safety concerns associated with Pfizer’s blockbuster drugs Bextra and Celebrex, Pfizer stock fell by approximately 24 percent, causing hundreds of millions of dollars in losses to the plans,” according to the (the lawsuit).
A Pfizer spokesman send us this statement: “We have not yet been served with this complaint. Based on our preliminary understanding, this case appears to be a reassertion of claims that were previously dismissed in a different court. We intend to defend vigorously any new assertion of these claims.”
original industry insider
Nobody has ever put a gun to any pharma employee’s head forcing them to participate in the stock retirement plan. Moreover, anyone who can read understands the disclaimer for every stock Here’e one for a typican growrth fund: “Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted. Performance for periods less than one year are cumulative, not annualized. Total returns include changes in share price and reinvestment of dividends and capital gains, if any.”
Suck it up guys. I hope that you were not overly concentrated in Pfizer stock in your 401K plan as well. As for stock options bought in the last dacade, fuhgettaboutit.
pharma gal
Not an expert, so would like an answer from someone in the know:mutual funds, and other invenstment experts aim to limit the percentage assets held in any particular stock or bond in order to diversify risk. Didn’t the custodians of the retirement fund have a fiduciary duty to reduce risk from overconcentration in one stock? It’s just basic investment common sense in the face of all the disclaimers about past performance not being predictive of future performance.
original industry insider
pharmagal you have put your finger on probably the most important issue in this case. That is, exactly where does the fiduciary responsibility of the plan administrator exactly lie? With the plan? With the beneficiary (employee). It’s the same reason that people are suing their brokers post 2008; does the broker’s fiduciary responsibility lie with the company whose stock he is selling on commission, or dies it lie with the client buying the stock?
On the 401K side you used to have to dig out the information to evaluate risk. Mistakenly, many employees loaded up on company stock in their 401K out of a sense of misguided loyalty. Advisors would tell you that this is exactly the wrong strategy in case the company suffers, and I’m continually amazed at how many people aren’t aware of this simple concept.
Christopher
I don’t think we know enough about the plans in question, nor who administered them to decide whether this is valid. Are these 401k plans managed by an external plan management firm (ie who should have excercized caution and avoided over-exposure)or are they internal stock purchase plans? The employee can decide to add company stock within a 401k (that is, to the investments selected by the plan manager) but that’s the individual’s choice.
If the employee participates in company plans, as in the Pfizer Stockholder Plan, I assume these are loaded towards company stock, as seems to have happened in Puerto Rico.
As for the case that company’s business decisions devalued the company stock, that’s probably hard to prove. It’s a free market: caveat emptor, and all that.
It is a shame for the stockholders, who are in by no means alone in holding stock that is worth significantly less than they would like it to be.
Former Pfizer Employee
When I was at Pfizer, the 401k corporate match was solely Pfizer stock and the employees were not allowed to transfer that value to other assets.
original industry insider
FPE, IRS regulation 26 CFR Part 1 [TD 9484]
RIN 1545–BH04 enacted 2010 allows employees with minimum 3 years service to divest their employers stock from their 401k and to diversify their holdings. Effective 1/1/11.
You must have worked their earlier. These days a company cannot compel you to buy a single share of company stock in a defined contribution retirement plan, unless you are saying that PFE makes you buy PFE stock in your 401K, then allows you to divest the stock after three years. With PFE’s recent stock performance that’s a lose-lose proposition for you. You lose money for three years on the declining stock performance, then pay an administratiove fee to the 401k plan when you sell your shares. I’m sure the company has said something reassuring, like “it’s not a loss until you sell it”.
http://edocket.access.gpo.gov/2010/pdf/2010-11924.pdf