Pub. L. No. 116-94 (2019). 29 U.S.C. § 1104. See Brookings Institute, When income is the outcome: Reducing regulatory obstacles to annuities in 401(k) plans, July 2019, available at https://www.brookings.edu/wp-content/uploads/2019/07/ES_201907_IwryGaleJohnJohnson.pdf.
It may take time for lower courts to refine these requirements, but the Supreme Court’s opinion makes clear that district courts should view such claims with a skeptical eye and provides a roadmap for ESOP fiduciaries faced with stock-drop suits. [1] 29 U.S.C. § 1104(a)(1)(C). [2] 29 U.S.C. § 1104(a)(2).
“Instead, ESOP fiduciaries are subject to the same duty of prudence that applies to ERISA fiduciaries in general, except that they need not diversify the fund’s assets.” Id. at 2463 (citing 29 U.S.C. § 1104(a)(2)). Moreover, the Court stated, ERISA “makes clear that the duty of prudence trumps the instructions of a plan document, such as an instruction to invest exclusively in employer stock even if financial goals demand the contrary.”
“Instead, ESOP fiduciaries are subject to the same duty of prudence that applies to ERISA fiduciaries in general, except that they need not diversify the fund’s assets.” Id. at 2463 (citing 29 U.S.C. § 1104(a)(2)). Moreover, the Court stated, ERISA “makes clear that the duty of prudence trumps the instructions of a plan document, such as an instruction to invest exclusively in employer stock even if financial goals demand the contrary.”
“Instead, ESOP fiduciaries are subject to the same duty of prudence that applies to ERISA fiduciaries in general, except that they need not diversify the fund’s assets.” Id. at 2463 (citing 29 U.S.C. § 1104(a)(2)). Moreover, the Court stated, ERISA “makes clear that the duty of prudence trumps the instructions of a plan document, such as an instruction to invest exclusively in employer stock even if financial goals demand the contrary.”
Plaintiffs pursued two general theories. First, they claimed that defendants had violated ERISA §§ 404(a)(1)(D) and 406(b)(3) (29 U.S.C. § 1104(a)(1)(D) and 1106(b)(3)) by using revenue sharing to offset plan administration costs. Second, plaintiffs claimed that defendants violated ERISA § 404(a)(1)(B) (29 U.S.C. § 1104(a)(1)(B)) by including a unitized stock fund, a short-term investment fund, and three retail mutual funds.
An ERISA fiduciary must act in accordance with the plan documents, act prudently and “discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and … for the exclusive purpose of … providing benefits to participants and their beneficiaries; and … defraying reasonable expenses of administering the plan.” 29 U.S.C. § 1104(a)(1) (emphasis added). Each ERISA plan is a separate entity and a fiduciary’s duties run separately to each plan.
Many of these cases also include claims based on alleged prohibited transactions between a plan and its fiduciaries or parties in interest under ERISA section 406. Application of the governing legal standards (adapted from the law of trusts) to these claims – performance of fiduciary duties solely in the interest of the plan's participants and beneficiaries and with the care and diligence "under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims (29 U.S.C. § 1104(a) – is flexible, imprecise and fact-intensive. These cases usually settle after protracted and expensive litigation, with substantial awards of attorneys' fees to plaintiffs' counsel. "
The claims are usually based upon alleged excessive investment management fees, excessive plan recordkeeping and other administrative expenses, and poor performance of investment options selected by and retained in the plan's investment menu by the plan's fiduciaries. Application of the governing legal standards (adapted from the law of trusts) to these claims – performance of fiduciary duties solely in the interest of the plan's participants and beneficiaries and with the care and diligence "under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims (29 U.S.C. § 1104(a) – is flexible, imprecise and fact-intensive. These cases usually settle after protracted and expensive litigation, with substantial awards of attorneys' fees to plaintiffs' counsel. "
“Instead, ESOP fiduciaries are subject to the same duty of prudence that applies to ERISA fiduciaries in general, except that they need not diversify the fund’s assets.” Id. at 2463 (citing 29 U.S.C. § 1104(a)(2)). Moreover, the Court stated, ERISA “makes clear that the duty of prudence trumps the instructions of a plan document, such as an instruction to invest exclusively in employer stock even if financial goals demand the contrary.”