PHILADELPHIA — The Pennsylvania Federation Brotherhood of Maintenance of Way Employees, and several plan participants, filed a class action lawsuit on December 13 against the Norfolk Southern Railroad and its Corporate Officers alleging that the improper use of Norfolk Southern stock has cost participants in the company’s 401(K) plan millions of dollars.
Norfolk Southern contributes shares of company stock to the employees 401(k) plan, and encourages employees to invest their 401(k) retirement contributions into Norfolk Southern stock, even though the stock has performed miserably in recent times. NS Chief Corporate officers are fiduciaries for the employees’ 401(k) plan and have been using participation in the 401(k) plan to keep their stock artificially higher.
This violates the fiduciary obligation they have to the 401(k) plan participants and is illegal.
The lawsuit asks that the losses suffered by the plan participants, as a result of this violation of their fiduciary obligations, be restored.
In recent years, NS corporate officers have made a series of bad business decisions that have put the company onto a glidepath of financial ruin.
In June of 1999, they purchased half of Conrail in a bidding war with CSXT.
This war drove up the costs of the sale price to a figure that many industry observers cautioned would never be recovered.
In 1998, the book value of Norfolk Southern was 6.8 billion dollars and half of the book value of Conrail was 2.6 billion dollars. By 2001, the total book value for NS, with the addition of half of Conrail was 5.6 billion dollars.
This ill-gotten purchase resulted in Norfolk Southern Railroad suffering a 3.8 billion dollar total loss of value. The stock value has reflected this loss, losing nearly 1/3 of its value since June of 1999. In June of 1999, the stock traded in the mid-thirties, but by the first quarter of 2000 had plunged to below 12. The stock price is currently hovering around 20. This loss has outpaced the losses suffered generally in the market during the same period. Jed Dodd, General Chairman of the Pennsylvania Federation BMWE stated:
“David Goode, CEO of Norfolk Southern, attempted to bury his bad business decisions in the employees’ 401K plan. It is both shameful and a violation of the law that Goode, with full knowledge of the financial state of the company, did not warn employees that investment in NS stock was a guaranteed financial loss. Instead he continued to encourage the use of the employees’ 401(k) retirement savings to artificially prop-up the failing railroad. This is an outright betrayal of the employees who have worked hard and put their faith in the company’s assurances. We intend to use whatever resources are available to us in an attempt to remedy the losses suffered by the members of the 401K plan.”
The Pennsylvania Federation Brotherhood of Maintenance of Way Employees is the labor union which represents the men and women who build and maintain railroad track, buildings and bridges for the Norfolk Southern Railroad Company, as well as other rail carriers.