Growing Old, Growing Smart?

Are our employers responsible when we mess up?

That’s the question before the Supreme Court in a dispute between Fifth Third Bank and some of its employees. The workers invested in the company’s 401(k) program. Like many companies, Fifth Third had lots of options—stocks, bonds, cash, and company stock. During the Financial Crisis, Fifth Third’s stock fell 97%–from $40 per share in June of 2007 to a dollar in February of 2009. Since then, the stock has come back about half way, to $20.

Fifth Third’s story isn’t unlike that of many banks during the crisis. Loans went south when the housing bubble burst, and banks that focused on mortgage-lending were in deep trouble. Some were wiped out. Key Bank, Sun Trust, Zion National, Regions Financial—all had their stock fall to almost nothing and then come gradually back. Fifth Third’s situation was made worse by its Ohio base, in the heart of the auto-country.

Lots of people invest in their own company’s stock as one of their choices when deciding what to do with their retirement savings. After all, doesn’t it make sense to “invest in yourself?” But Fifth Third was and is a $110+ billion bank with diverse businesses subject to economic, financial, competitive, and regulatory risks. In this case the employees claim that the bank should have stopped offering its stock as an option. Any reasonable administrator would have done so, they say, since the stock was falling like a rock. But the bank claims it wasn’t in dire straits. The market was in a panic, but the bank had reserves and contingency plans. In the end, they borrowed $3½ billion in TARP funds, which they later paid back.

401(k) plans give us the ability to take our retirement savings with us if we move from job to job. In exchange, we need to take responsibility for how much we save and what we invest in. That’s the deal. Sometimes our choices go bad. As my high-school German teacher used to say, “We grow too soon old, and too late smart.”:

Douglas R. Tengdin, CFA

Chief Investment Officer

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