Supreme Court Provides Additional Clarity on Pleading Requirements for ERISA Stock Drop Cases

Anne M. Meyer • March 7, 2016

The Supreme Court has provided additional clarity on the Fifth Third Bancorp v. Dudenhoeffer decision.  In Dudenhoeffer , the Supreme Court held that a fiduciary decision to invest in employer stock is not deemed to be prudent; however, in bringing a claim for a fiduciary breach, plaintiffs must allege an alternative action that a 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 than help it.  For additional information on the Dudenhoeffer decision, please see our July 15, 2014 blog.

In Amgen v. Harris , participants sued following a significant decline in the value of the company stock fund in the employer’s employee stock ownership plan, claiming that the company stock fund was an imprudent investment.

The Ninth Circuit determined that the plaintiffs’ complaint plausibly alleged that there was a genuine issue of whether the fiduciaries breached the prudent person standard by continuing to hold and purchase Amgen stock following its decline in price.

In a four page decision, the Supreme Court reversed the Ninth Circuit and held that for plaintiffs to challenge the prudence of a company stock fund in a retirement plan, the plaintiffs must allege that a prudent fiduciary could not have concluded that stopping purchases of the company stock fund or disclosing negative information to the public would do more harm than good to the company stock fund by causing a drop in the stock price and a drop in the value of the stock already held in the company stock fund.

The Supreme Court held that the Ninth Circuit failed to properly evaluate the complaint because the Ninth Circuit failed to evaluate whether the complaint in its current form “plausibly alleged” that the alternative action would do more harm than good.

The Supreme Court remanded the case back to the Ninth Circuit, but also noted that it is within the District Court’s discretion to allow the plaintiffs to amend their complaint to plead a claim for a breach of fiduciary duty based on the standards required by the Dudenhoeffer decision.

This decision provides some additional guidance on how courts will apply the Dudenhoeffer decision, which most plan fiduciaries likely consider to be a victory.  Nonetheless, it remains clear that plan fiduciaries must actively monitor a company stock fund in accordance with ERISA’s prudence requirement.

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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