
What Bill Gross' Huge Lawsuit Means for Your Retirement
This article, originally published at 8:08 a.m. on Oct. 16, 2015, has been updated with findings from a retirement survey.
NEW YORK (TheStreet) -- It may be tempting to write off Bill Gross's lawsuit against his former firm, PIMCO, as a billionaire seeking to get richer, but the lawsuit contains a real life lesson for employees of more modest means: Read before you sign.
Gross's case "is another classic example for why it is exceedingly important for both parties -- the employer and employee -- to have detailed, written employment contracts or plan documents that sets forth who is entitled to what amount of benefits," said Robert Fields, a New York-based attorney who specializes in employee benefits and executive compensation.
"Unless you have everything -- all these factors -- written down in detail and signed by both parties, you're setting yourself up for a lot of heartache," Fields said.
Last week, Gross sued his former employer on several claims valued at hundreds of millions of dollars each, money he said he plans to give to charity. He alleges that managers at PIMCO plotted to drive him out of the company he co-founded in 1971 in a manner that would allow them to divvy his bonus payments among themselves.
The dollar amount is large and the headlines huge, but the case has implications for regular employees with much smaller incentive-compensation arrangements -- from bonuses to stock awards -- who get fired or resign to take another position. The fallout from a financial loss in those situations may prove long-lasting since incentive compensation is often an important piece of retirement savings.
"Bill Gross's situation is different because he has resources, but most employees in this situation would find themselves waging war against an entity that is much better equipped," said Thomas Greene, a partner specializing in executive compensation at Holland & Knight in Boston.
Gross left PIMCO on Sept. 26, 2014, just days before the end of the third quarter -- one of the four periods each year in which bonuses were paid -- and announced he was going to Janus Capital. Typically, bonuses were larger near the end of the year.
Although tensions among the higher ranks at PIMCO had been widely reported, Gross' departure was somewhat of a surprise, as his name had become synonymous with PIMCO. In addition to co-founding the business, Gross also managed the firm's Total Return Fund, which at the time was the world's largest and a mainstay in many people's 401(k) plans.
"One of the sub-issues with this particular situation is, 'What was the nature of the departure and how does that affect the overall interpretation of the plan?'" Greene said. The difference between being fired for cause and being laid off might affect the financial outcome for employees.
In his complaint, Gross details months of infighting at PIMCO in which he had conversations about what his role and compensation would be, only to have those agreements negated later.
When Gross exited the company, he believed that he was still entitled to at least some of his third-quarter bonus as "PIMCO's usual custom and practice was to pay departing employees an appropriate share for partially completed quarters," he said in the complaint.
Gross submitted a copy of PIMCO's profit sharing plan as evidence. Like most contracts, it is heavy on the legalese, which can make even the most intelligent employees want to consult a legal dictionary -- or lawyer:
"Upon the Termination of Employment of a Participant, unless otherwise provided in his or her employment agreement, if any, his or her participation in the Plan shall be terminated, except with respect to the Profit Sharing payable (i) with respect to the Coverered Quarter preceding his or her Termination of Employment and (ii) with respect to a Termination of Employment due to death or permanent disability, with respect to the partial Covered Quarter in which such Termination of Employment due to death or permanent disability occurs."
Few people -- even the most seasoned executives -- could make it through that section absolutely certain of what they would be entitled to upon leaving a company. Further complicating matters is that the section also addresses compensation arrangements outside of that particular plan.
For many executives, it's not uncommon for compensation to include a mix of long- and short-term incentive plans that may be paid in cash, stock, or fringe benefits. Making sure the plans work together -- or at least don't present ambiguities -- is crucial.
"You have to make sure that the terms of any contract either coincide with the plan or specifically set forth provisions that are specifically stated that they supersede the plan," Fields said.
New employees may find it difficult to bring up such conversations when they are negotiating compensation, partly because they don't want to talk themselves out of a job and partly because relationships are generally more positive in the beginning.
"It's great to have that trust but you need to verify everything through documentation," said Greene, the Holland & Knight attorney. "These issues never come up when things are great; they always come up when things are kind of spoiled."
Making sure employment agreements are clear can be particularly beneficial for millennials, who at 92 million make up the biggest generation in U.S. history.
Many came of age during the financial crisis, and according to a Bank of America/USA Today report this week, about a fourth of them worry that they won't have enough money for retirement. That portion, 24%, is up three percentage points from last year, the study found.
Millennials' concerns may be amplified by the fact that about twice as many feel like they have expertise in social media, about 34% of respondents, as in personal finance. Only 17% claimed proficiency in the latter area.
For employees who find themselves signing compensation agreements, Greene urges clearing up uncertainties to ensure a "surgical" departure where benefits are paid on schedule.
"Hope for the best, but anticipate the worst in the documents and work to make things clear," he said.









