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CCH® PENSION — 04/26/11

DOL amicus brief challenges heightened standard for rebutting presumption of prudence in stock drop suit

In an amicus brief challenging the dismissal of a fiduciary breach claim against an independent fiduciary for failing to discontinue an investment in company stock, the DOL has forcefully rejected the position articulated by the Ninth Circuit that the presumption of prudence attendant to an investment by an ESOP fiduciary in company stock should apply absent the "impending collapse" of the company. In the brief, the DOL also stressed that ERISA §404(c) does not shield a fiduciary from liability stemming from the imprudent selection and monitoring of plan investment options.

Relying on language in the Preamble to ERISA Reg. §2550.404c-1(b)(2), the DOL emphasized that the act of designating investment alternatives in a 404(c) plan is a fiduciary function. In addition, because the selection or monitoring of investment options available under the plan is not the direct and necessary result of participant direction of the plan, the ERISA §404(c) protection does not apply. Thus, fiduciaries, the DOL stressed, remain liable, even under 404(c) compliant plans, for imprudent actions with respect to the selection and monitoring of plan investment options. In the amicus brief, the DOL maintained that its interpretation of ERISA through the exercise of its regulatory authority is entitled to deference. Accordingly, the DOL argued, its interpretation of ERISA §404(c) as not shielding fiduciaries from liability for losses attributable to their own imprudent selection and monitoring of investment options should be deferred to and accepted as authority by the courts.

Source: DOL Amicus Curiae Brief, in Pfeil, et al. v. State Street Bank and Trust Co., CA-6 (2011), No. 10-2302..

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For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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