Employer Securities

As noted in our earlier blog post, the U.S. Supreme Court’s 2014 decision Fifth Third Bancorp v. Dudenhoeffer made clear that participants bringing stock-drop cases are subject to heightened pleading standards to help “divide the plausible sheep from the meritless goats.”

In its first substantive ruling in a post-Dudenhoeffer stock-drop case, the U.S.

Yesterday, the Supreme Court issued its much anticipated decision in the stock-drop case, Fifth Third Bancorp v. Dudenhoeffer.  The Court vacated the lower court decision that was adverse to the employer, Fifth Third Bancorp, and remanded the case to the lower courts for further proceedings.

Fiduciaries of employee stock ownership plans (ESOPs) had hoped that this decision would clarify their responsibilities for administering an employer stock fund.  Although the decision leaves many questions unanswered, it does provide useful guidance for fiduciaries administering an employer stock fund in an ESOP:
Continue Reading Stock-Drop Decision Helpful to ESOP Fiduciaries

The Seventh Circuit’s recent decision in White v. Marshall & Ilsley Corp. awarded another early-round victory to employers in ERISA stock-drop litigation.

The plaintiffs in this case sought to recover losses in the M&I Bank 401(k) Plan’s stock fund that were attributable to a 54% decline in the market price of M&I stock that occurred during the financial crisis of 2008 and 2009.  The district court granted M&I’s motion to dismiss the plaintiffs’ misrepresentation and imprudent investment claims, but the plaintiffs appealed only the dismissal of their imprudent investment claims.

The Seventh Circuit affirmed the district court’s judgment.  Consistent with rulings by the Second, Third, and Eleventh Circuit (and contrary to a ruling by the Sixth Circuit), the Court ruled that the presumption of prudence adopted by the Third Circuit in Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995) applied at the pleading stage as a substantive standard of conduct and that the presumption was not an evidentiary standard to be applied at the summary judgment stage, as urged by the plaintiffs and their amicus, the Secretary of Labor.
Continue Reading Employers Continue to Prevail in Stock Drop Litigation

Many appellate courts have ruled that fiduciaries who allow plan investment in employer stock are entitled to deferential judicial review or a “presumption of prudence” when the plan document requires or encourages the offering of employer stock as an investment option.  But a new Second Circuit decision demonstrates that references to an employer stock fund in the plan document may not sufficiently “encourage” that option to give rise to the presumption.  Taveras v. UBS AG, No. 12-1662 (2d Cir. Feb. 27, 2013).
Continue Reading When Does a Plan Document “Encourage” an Employer Stock Fund Enough to Justify the Presumption of Prudence?