Bed Bath & Beyond (OTCMKTS:BBBYQ) declared bankruptcy in April, although its creditors weren’t the only ones affected. Yesterday, employees of the company sued the Bed Bath committee in charge of their 401(k) retirement plan through a proposed class action. The employees allege that they suffered losses greater than $5 million after their MassMutual “guaranteed investment account” dropped by 10% due to rising interest rates.
Guaranteed investment accounts generally consist of stocks and bonds, while the insurer pays a fixed rate of return. Rising rates are generally detrimental for stocks, as they reduce the present value of future company earnings due to a higher discount rate. Bed Bath’s 401(k) plan for employees was terminated on Aug. 1.
BBBYQ Stock: Bed Bath Employees File Class Action
The class filers have also alleged that Bed Bath’s 401(k) committee violated its fiduciary duty by failing to replace the MassMutual account with other options, such as a money market fund “that carried less principal risk if the company went bankrupt.”
Former employees stated that the account was primarily invested in long-term bonds, which are especially susceptible to rising rates. When interest rates rise, bond prices fall. The employees also believe that MassMutual is liable to make up losses in the event of a contract termination.
Bed Bath knew by “as early as 2019” that its business model was running into hot water, per the complaint. The company also allegedly had “ample opportunity” to replace the MassMutual account in 2020 and 2021 before the Federal Reserve raised rates. If the firm had successfully done this, “it would have terminated the MassMutual Contract by notice and avoided the risk of Plan losses that could result from BBB’s bankruptcy and a decrease in value of the GIA’s underlying portfolio.”
The class action ultimately accuses Bed Bath’s 401(k) committee of violating the federal Employee Retirement Income Security Act. This act generally offers 401(k) protections.
This news has not been a welcome sight for shareholders. Investors have already seen the value of BBBYQ stock decline by around 90% so far this year.
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On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.