Supreme Court Decision Changes Standards for Employer Stock in Retirement Plans

Anne M. Meyer • July 15, 2014

The Supreme Court recently decided a case that eliminates the “presumption of prudence” for plan fiduciaries relating to their investment in employer stock in retirement plans.  In Fifth Third Bancorp v. Dudenhoeffer , the Supreme Court determined that fiduciaries of an employee stock ownership plan (“ESOP”) are not entitled to a presumption of prudence.  Rather, the ESOP fiduciaries must comply with same standard of prudence that applies to all ERISA fiduciaries, except that an ESOP fiduciary is under no duty to diversify the ESOP’s investments.

In its decision, the Supreme Court provided a roadmap for the lower courts in applying the pleading standard.  In short, the Court stated that when stock is publicly traded, allegations that a fiduciary should have recognized from publicly available information alone that the stock was overvalued or undervalued are generally implausible, absent special circumstances.

When the allegation of a breach of fiduciary duty is based on nonpublic information, a plaintiff must allege an alternative action that the plan fiduciary could have taken that would be consistent with the securities laws and that a prudent fiduciary would not have viewed as more likely to harm the stock fund that help it.  According to the Court, three points should be considered in this analysis:

  • ERISA does not require a fiduciary to break the law ( e.g. , federal securities laws).
  • Courts should consider whether the decision to purchase stock or failing to disclose information to the public could conflict with the insider trading laws and corporate disclosure requirements and the objectives of those laws.
  • Courts should consider whether a prudent fiduciary could have concluded that stopping purchases or publicly disclosing negative information would do more harm than good to the stock.

For additional information on this case, please see our Employee Benefits Update here .

Employee burnout: what it is and how to prevent it

By Mardy Gould • May 24, 2024
Employee burnout has become an epidemic in today’s modern workplace. So much so that the World Health Organization (WHO) officially recognizes it as an “occupational phenomenon.”1 While many used to consider mounting workplace stress an individual employee problem, these days, it’s become an employer’s responsibility to prevent burnout before it hurts productivity and business performance—not to mention your employees’ physical and mental health. Luckily, you can prevent burnout from affecting your workforce in several ways. This article will explore the causes and signs of employee burnout and the steps you can take to create a positive work environment where employees feel safe from toxic stress levels.

Form 720 and PCORI fee FAQs

By Mardy Gould • May 23, 2024
If you're a small business owner, you may have heard of the acronym PCORI and the fees that come with it. But what is PCORI, and how does it apply to your organization? Under the Affordable Care Act (ACA), sponsors of self-insured health plans must pay a fee to fund the federal Patient-Centered Outcomes Research Institute (PCORI). PCORI is an independent organization the ACA created to conduct research to help healthcare consumers make better decisions for their specific needs and outcomes. It also performs research related to clinical effectiveness. Employers offering a self-insured medical reimbursement health plan, such as a health reimbursement arrangement (HRA), must pay this fee by July 31 each year via Form 7201. This fee was initially set to expire in 2019, but Congress extended it through September 30, 20292, due to the Further Consolidated Appropriations Act of 20203.
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