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RadioShack facing 401(k) suits

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RadioShack’s creditors weren’t alone this week in wondering what’s next for the bankrupt electronics retailer. 

Upset participants in its 401(k) plan are awaiting their day in court, while regulators are probing how it managed its retirement plan. 

Three lawsuits were filed on behalf of former and current RadioShack employees within weeks of each other in November and December, all alleging the company imprudently offered 401(k) participants company stock in their savings plan when fiduciaries knew it was bound to lose value. 

In Singh v RadioShack, one of the “stock drop” claims filed in U.S. District Court for the Northern District of Texas, the plaintiffs’ attorneys claim the company’s plan fiduciaries should have known that matching contributions in stock, or offering them in the plan, was a bad idea, because of the “sea-change in the central risk-profile and business prospects of the company cause in part by corporate mismanagement,” according to court documents. 

That claim points out the company’s 2009 Summary Plan Description explained a company match of up to 4 percent of salary, which could be contributed in the form of cash or company stock. 

Shares of the iconic brand began to plummet in 2010. 

On June 30, 2011, one of RadioShack’s plans held 2.9 million shares of company stock valued at $39.5 million. By June of 2013, the plan had increased its shares to 3.5 million, but their total value had crashed to $11.25 million. 

And while the plan removed some investment options over the same period, the RadioShack company stock option remained available to participants. 

At the end of 1999, RadioShack stock traded near $77 a share. It’s 2010 high was near $25.

This week, the New York Stock Exchange suspended trading in RadioShack and delisted the stock. Shares were trading over the counter for about 13 cents. 

Last December, the Dallas-based firm revealed in a filing with the Securities and Exchange Commission that the Department of Labor was conducting an investigation into how the company managed its defined contribution plan from 2011 on. 

How prospective settlements with plan participants or the DOL factor into RadioShack’s bankruptcy proceedings is not clear, as the petition filed Thursday in bankruptcy court made no mention of the cases or the investigation. 

Tentative terms for Sprint and a hedge fund to acquire between 1,500 and 2,400 of RadioShack’s 4,000 company-owned U.S. stores are subject to approval by the court. 

“These steps are the culmination of a thorough process intended to drive maximum value for our stakeholders,” said Joe Magnacca, RadioShack’s CEO, in a statement.