In its unanimous opinion in Fifth Third Bancorp v.
Dudenhoeffer (docket number 12-751), the high court says they are
subject to the same duty of prudence that applies to ERISA fiduciaries in
general per Section 1104(a)(1)(B), except that they need not diversify the
fund’s assets, per Section 1104(a)(2). The court notes that Section
1104(a)(1)(B) imposes a ‘prudent person’ standard by which to measure
fiduciaries’ investment decisions and disposition of assets, and Section
1104(a)(1)(C) requires ERISA fiduciaries to diversify plan assets. But, Section
1104(a)(2) establishes the extent to which those duties are loosened in the
ESOP context by providing that “the diversification requirement of
[§1104(a)(1)(C)] and the prudence requirement (only to the extent that it
requires diversification) of [§1104(a)(1)(B)] [are] not violated by acquisition
or holding of [employer stock].”
The justices agreed that Section 1104(a)(2) makes no
reference to a special “presumption” in favor of ESOP fiduciaries and does not
require plaintiffs to allege that the employer was on the “brink of collapse,” as
some circuit courts have established.
“Thus, aside from the fact that ESOP fiduciaries are not
liable for losses that result from a failure to diversify, they are subject to
the duty of prudence like other ERISA fiduciaries,” Justice Stephen G. Breyer
wrote in the opinion.
the 6th U.S. Circuit Court of Appeals, the Supreme Court said that on remand,
the appellate court should reconsider whether the complaint states a claim by
applying the pleading standard as discussed in Ashcroft v. Iqbal and Bell
Atlantic Corp. v. Twombly, considering that where a stock is publicly
traded, allegations that a fiduciary should have recognized on the basis of
publicly available information that the market was overvaluing or undervaluing
the stock are generally implausible and thus insufficient to state a claim. The
pleading standard requires that to state a claim for breach of the duty of
prudence, a complaint must plausibly allege an alternative action that the
defendant could have taken, that would have been legal, and that a prudent
fiduciary in the same circumstances would not have viewed as more likely to harm
the fund than to help it.