Investors Recoup Losses from J.P. Morgan Investment

Washington, DCIt is one thing to knowingly invest in an entity that puts the assets of an ERISA plan at risk. Such a move would prove a violation of fiduciary duty on the part of an employee stock plan manager. At the same time, however, prudent fund managers will invest their funds in legitimate, seemingly safe investments—only to find out after the fact that there was a problem.

Such was the case with various General Motors pension plans, which were invested with a fund under the auspices of J.P. Morgan Chase. As a result, J.P. Morgan Securities agreed to pay $153.6 million to settle civil fraud charges filed by the US Securities and Exchange Commission (SEC).

J.P. Morgan did not admit to any wrongdoing and none of their executives were charged in the matter. Investors who lost money—including the employee savings plans managed by General Motors—recouped their losses by way of the settlement.

However, not all plans are that fortunate. Many an employee 401k plan has been decimated either through mismanagement or an investment gone badly. If losses cannot be recovered, employees are left in the void, often with little time to make up the shortfall before ultimately taking retirement.

The J.P. Morgan case unraveled in 2007 as the housing bubble began to burst, according to the June 22 edition of the Washington Post. An outside advisor (who was ultimately charged by the SEC) allowed Magnetar Capital—a hedge fund—to select and bet against housing assets that later failed when the bubble burst.

J.P. Morgan itself is said to have suffered losses approaching $900 million. Combined with the $153.6 million settlement that will go to investors such as ERISA pension plans, the total bill for the 2007 debacle grows to over a billion dollars.

The move away from lifelong jobs with one employer, and the disappearance of traditional pension plans, increases the importance of sound fiscal management of ERISA investment plans that provide employees a retirement nest egg when it comes time to pack it in at the workplace.

Such losses to ERISA benefits, either due to mismanagement or investment failures beyond the control fund managers, are tough on employees who may have little time to make up for those losses. Some workers will have to delay needed retirement plans and keep working in an attempt to make up for lost pension value.