September 05, 2012
--- The 6th U.S. Circuit Court of Appeals has revived a
lawsuit against Fifth Third Bank concerning company stock holdings in its
employee retirement plan. ---
The
6th Circuit reversed a lower court’s decision to dismiss the case
because employee stock ownership plan (ESOP) sponsors are given a presumption
of prudence in keeping plan assets invested in company stock due to the nature
of the plan (see “Judge Tosses Fifth Third Stock Drop Suit”).
The appellate court noted that the “legislative history combined with a natural
and clear reading of § 404 [of the Employee Retirement Income Security Act
(ERISA)] [led] to the inexorable conclusion that ESOP fiduciaries are subject
to the same fiduciary standards as any other fiduciary except to the extent
that the standards require diversification of investments.”
They
do not relieve a fiduciary from the general responsibility provisions of § 1104—which
require a fiduciary to discharge his duties respecting the plan solely in the
interests of plan participants and beneficiaries and in a prudent fashion—nor
does it affect the requirement that a plan must be operated for the exclusive
benefit of employees and their beneficiaries.
The
6th Circuit also recalled its previous decision in Pfeil v. State
Street Bank and Trust Company, holding that the presumption “is not an
additional pleading requirement and thus does not apply at the motion to
dismiss stage.” In that ruling, the appellate court explained that an ESOP
plaintiff could rebut this presumption of reasonableness by showing that a
prudent fiduciary acting under similar circumstances would have made a
different investment decision, which is best-served through a fully developed
evidentiary record (see “Appellate Court Reopens Case Against State Street by
GM Participants”).