THE BED BATH & BEYOND 401k SAVINGS PLAN
The Bed Bath & Beyond 401k Savings Plan is a defined contribution plan with 19,268 plan participants and beneficiaries. The plan sponsor is Bed Bath & Beyond, Inc.
Plan performance is difficult to gauge since $104 million was transferred out of this plan in 2021 to another plan, with details unspecified. However, from details available, it appears that Bed Bath & Beyond 401k Savings Plan assets increased in value for 2021 at about 12%, both for mutual funds and collective trust assets. This increase is generally in line with othe pension fund increases for 2021 (but lower than a passive index fund investment in the S&P 500).
ABOUT BBBY
Bed Bath & Beyond is a well-known home goods retail giant with 953 stores nationwide (2022). The company is headquartered in Union Township, NJ. It’s stock trades under the symbol NASDAQ:BBBY. As of the date of this post, the BBBY stock price is at a 5-year low: $1.33.
On February 7, 2023, Bed Bath & Beyond completed an underwritten public offering which raised initial gross proceeds of $225 million and enabled the company to receive up to an additional $800 million. On March 7, 2023, the company received an additional $135 million in gross proceeds, for a cumulative total of $360 million, to date, from the February public offering. A portion of the offering proceeds is targeted to interest payments on outstanding bonds.
S&P rated Bed Bath & Beyond bonds at CCC- on March 6, 2023. A CCC rating is the fourth tier of speculative-bond ratings. This CCC rating was actually an upgrade from its previous D rating (the lowest rating possible). The upgraded rating followed the company’s February public offering that raised funds to pay interest on outstanding debt.
There is very often a correlation between a low bond rating and a pension plan that is insufficiently funded. During the year ended December 31, 2021, the plan administrator was delinquent in remitting to the service provider certain employee contributions totaling $22,181. But, to its credit, The plan administrator computed lost earnings on these deposits and subsequently remitted the deposits, together with a one-time contribution for the lost earnings to the Plan.
401k REPORT CARD CRITERIA
The primary goal of this review is to evaluate the Bed Bath & Beyond 401k Savings Plan for plan transparency. In other words:
how easy (or difficult) is it for plan participants to understand the investing options presented in the plan, and the value of assets in each investing option?
Otherwise stated: can a plan participant fairly estimate what the plan assets are worth, and make informed investing decisions based on the information and menu options presented?
We examine the following criteria:
— the percentage of plan assets held in a collective trust;
— the percentage of plan assets valued at net asset value (NAV);
— the description (if any) of assets held in Levels 2 and 3 of the fair value hierarchy;
— performance comparisons.
PLAN ASSET ALLOCATION
As of year end 2021 (the last DOL reporting date) Bed Bath & Beyond 401k Savings Plan assets held in participant-directed accounts were:
Mutual funds: $ 347,144,765
Collective trust: $ 242,438,583
This meant that 59% of all assets in participant-directed investment segments were held in a mutual funds, while 41% were held in a collective investment trust.
Put another way, plan participants had fair market value visibility into about 60% of the investment options made available to them.
FAIR VALUE HIERARCHY DISCLOSURES
Level 1 Assets (mutual funds): $347,144,765:
BBBY reports that mutual fund investment values are recorded as Level 1 assets. This is a correct reporting, in our view, of mutual fund assets. Level 1 valuation means that fair market value is marked at least daily. Therefore, participants and beneficiaries can tell precisely what is happening with their plan investments.
NAV Assets (collective trust assets): $242,438,583:
BBBY reports in its DOL 5500 form that all assets held in a collective trust are recorded at net asset value.
NAV recorded assets are to include:
NAV: assets that, as a practical expedient, are reported outside the fair value hierarchy but are included in the total assets for reporting and reconciliation purposes.
In our view, there is no excuse for reporting a material percentage of plan assets at net asset value. NAV reporting typically obfuscates actual fair market value of an underlying asset, since no real effort is made to correctly value CIT assets at a price that would actually be acceptable to a buyer or seller.
PERFORMANCE COMPARISONS
BBBY mutual fund growth YoY: 2021 | 12.6%
BBBY collective trust growth YoY: 2021 | 12.4%
S&P 500 growth YoY: 2021 | 26.9%
Bed Bath & Beyond mutual fund assets performed almost exactly on par with its collective trust assets. But both funds performed worse than the S&P 500 (which is not unusual for an actively managed pension fund).
CONCLUSIONS
Conclusions from this Bed Bath & Beyond 401k Plan review are the following:
First, BBBY’s troubled financial performance in equity and bond markets is a conspicious red flag for ongoing integrity of its pension plans. There is nearly always a spill-over effect from poor company performance to pension plan performance. Participants should expect a very real possibility that BBBY will jettison its pension plans in the coming year as a cost-savings measure. If this happens, significant due diligence should be performed in all areas of plan administration.
Second, that said, a high-level review suggests that the plan’s managers have actually performed well through 2021, based on data available. Although data regarding the $104 billion asset transfer from the plan to another (unidentified) plan raises questions, the plan’s Form 5500 report seems reasonable, overall.
Third, plan performance at 12% increase in value for 2021 is in line with results reported by man pension funds.
Fourth, the plan has a very large exposure to collective investment trust assets that are valued at net asset value. NAV does not provide sufficient information for plan participants to identify the actual fair market value of their investment holdings, or the assets made available in investing options made available by the plan. In the current volatile market, insufficient information is provided to assist plan participants in making informed investing choices.
If you are a Bed Bath & Beyond employee or reitree with questions about your pension holdings in the Bed Bath & Beyond 401k Savings Plan, give us a call for a free consultation, or fill in the contact fields in the adjacent section and we will get back to you –>
CONTACT US
About the Author
Kevin McBride is a Pension & Benefits Litigation Attorney in Los Angeles, California, USA.
He is admitted into three California US District Courts (Central, Southern, and Northern), the US District Court for the District of Utah, the Ninth Circuit Court of Appeals, and the Federal Circuit Court of Appeals. McBride holds a BA degree in Economics from the University of Utah and a JD from the University of Utah College of Law, where he served on the Utah Law Review. He is a member of the Federalist Society and the Federal Bar Association.
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