Retirement Dreams Up in Flames?
California wildfires cause potential liability of $15 billion
The tragic and deadly Northern California Camp Fire has gained widespread media attention over the past several days. Although the focus has mainly been on the homes destroyed and the tragedy of lives lost, another group that could bear significant damage is the shareholders and executives of Pacific Gas & Electric Company.
As the fire continued to ravage Northern California, media reports began to circulate that the cause of the fire had something to do with a power line owned by PG&E. Soon the reports increased in frequency and legitimacy, culminating in the filing of a lawsuit by a plaintiff’s attorney who contended that the evidence demonstrating PG&E was the initial cause of the fire was “pretty overwhelming.” PG&E for its part was forced to disclose that it had an outage of its power line in virtually the same area the fire began 15 minutes before the fire started.
Against this backdrop of unfavorable news, PG&E’s stock (symbol PCG) lost more than half of its value in a single week as shareholders fled the utility amid concerns that its equipment may be responsible for the most destructive wildfire in California’s history. PCG shares plunged nearly 30% on Thursday, November 15, after falling 20% the day prior. The stock traded at around $18 per share as of Thursday afternoon, which is a tremendous decline given that Wall Street price estimates on the stock were north of $65 per share.
Although it has not happened yet, the potential bankruptcy of PG&E is clearly driving the negative price action on PCG this week. If that were to materialize, PG&E executives & retirees could face significant losses associated with their non-qualified deferred compensation (NQDC) accounts sponsored by PG&E. The company’s website indicates that any amount in the deferred compensation account “represents an unsecured claim against the company.”
The lessons to be learned here are obvious and directly relevant to any employee or retiree with a substantial amount in a deferred compensation plan. Even plain “vanilla” utilities like PG&E can unexpectedly suffer catastrophic losses in value very quickly, so quickly that there is no time to do anything to protect oneself from the full consequences of the decline.
StockShield believes the only intelligent and prudent course of conduct is to implement a risk mitigation strategy BEFORE the unknown event materializes and causes a catastrophic decline in a company’s value sufficient to materially increase its bankruptcy risk and wipeout its deferred compensation plan.