Moench presumption bars duty of prudence claim against ESOP fiduciaries after stock price drop

ESOP participants failed to state a claim that plan fiduciaries breached their duty of prudence under ERISA by failing to divest the plan of employer stock that had declined in value, the U.S. Court of Appeals in New York City (CA-2) has ruled in a summary order affirming the district court’s ruling.

By its terms the ESOP required employer stock to be offered as an investment option. Thus, the appellate court reviewed the decision not to divest the stock using the heightened presumption of fiduciary prudence known as the Moench presumption. The participants failed to allege facts showing the fiduciaries knew or should have known the employer was in an unforeseeably “dire situation” that would have caused a reasonable ESOP fiduciary to divest employer stock. The fact that a company possesses some risky assets is not enough by itself to justify divesting a plan of the company’s stock.

The participants also failed to state a claim that fiduciaries violated their duty of loyalty by incorporating false or misleading statements into ESOP plan documents. Even assuming that the employer’s SEC filings included false information that was then incorporated into plan documents, the participants offered no basis on which to conclude the fiduciaries knew, at the time the filings were incorporated, that the statements were false or misleading.

Finally, the court ruled the ESOP participants lacked standing to make similar fiduciary breach allegations with respect to employer stock held in a retirement plan, because they were never participants in the retirement plan.

Source: In re Slaymon v. SLM Corp (CA-2).

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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