High Court to Weigh Pension Planners’ Duties

(CN) - The Supreme Court will consider when managers of employees' defined contribution retirement plan have a legal duty to stop investing in the company's own stock when they know it has precipitously declined in value.

Plaintiffs John Dudenhoefer and Alireza Partovipanah, former employees of Fifth Third Bank, each participated in the plan and invested in the banks common stock beginning in 2007. Under the plan, the plaintiffs made voluntary contributions from their salaries and directed its fiduciaries to purchase investments from preselected options.

During the time they participated in the plan, these options included Fifth Third Stock, two collective funds, or seventeen mutual funds.

In 2008, Dudenhoefer and Partovipanah filed a class action against the fiduciaries in the federal court in Cincinnati, charging that they failed to exercise the required skill, prudence or diligence in administering the plan.

Specifically, the plaintiffs alleged the defendants breached their fiduciary duties in violation of ERISA by continuing to offer company stock as an investment option, instead of suitable short-term options within the plan, when the stock no longer was a prudent investment for participants' retirement savings.

They also claimed the fiduciaries failed to communicate complete and accurate information about the plan, failed to avoid conflicts of interest, and failed to supervise or properly manage their appointees.

In November 2010, U.S. District Judge Sandra Beckwith granted the defendants' motion to dismiss, holding that the plaintiffs failed to state a plausible claim for relief.

In her opinion, Judge Beckwith found that as the plan was an employee stock ownership fund under ERISA, the defendants benefitted from a presumption that their decision to remain invested in employer securities was reasonable.

In this light, she said, the plaintiffs failed to allege facts to overcome this presumption of reasonableness. Dudenhoeffer appealed her decision a month later.

In September 2012, a three-judge panel of the 6th Circuit reversed Beckwith's judgment, and remanded the case for further proceedings. In doing so, it held the district court erred in dismissing plaintiff's prudence and disclosure claims, and that as a result, it did not "substantially analyze" the plausibility of the remaining counts.

In granting the case a writ of certiorari, the high court said it would consider two questions:

Whether the 6th Circuit erred by holding the respondents were not required to plausibly allege in their complaint that the fiduciaries of an employee stock ownership plan abused their discretion by remaining invested in employer stock; and whether the circuit erred "by refusing to follow precedent of this Court (and the holdings of every other circuit to address the issue) by holding that filings with the Securities and Exchange Commission become actionable ERISA fiduciary communications merely by virtue of their incorporation by reference into plan documents." (Parethesis in the original).

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