Compliance May 15, 2008

Court Says LaRue Ruling Doesn't Apply to ESOP Challenge

A U.S. district court rejected the attempt by an employee stock ownership plan (ESOP) participant to revive her fiduciary breach case based on the recent U.S. Supreme Court ruling.
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In its opinion, the U.S. District Court for the Middle District of Alabama pointed out that the case in the Supreme Court ruling LaRue v. DeWolff differed from the case brought by ESOP participant Benita L. Cook. The LaRue case said that defined contribution plan participants can seek individual account damages in fiduciary breach suits (see Supreme Court Allows Individual ERISA Suits in Landmark Ruling).

The Cook case concerned a plan in which participants were allowed direct investment of their account holdings. In Cook’s case, the plan was required to maintain investments in employer stock.

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“There is no allegation that Plaintiffs could make individual choices as to how the ESOP was funded or that Plaintiffs’ losses occurred based on [defendant’s] failure to adhere to Plaintiffs’ individual directives as to how their accounts (i.e., their proportional share of company stock) were to be maintained,” the court said in its opinion.

Senior U.S. District Judge Ira DeMent claimed in the opinion that Cook and the class of participants she represented in the case misunderstood why summary judgment was previously granted to the defendant. DeMent pointed out that the plaintiffs alleged breaches of fiduciary duties that negatively affected the value of the company stock, which not only affected their accounts, but the account of every ESOP participant, or the plan as a whole.

The district court ruled that when a system breach of fiduciary obligations affect the plan as a whole, recovery of damages to individual accounts is not an appropriate form of relief under the Employee Retirement Income Security Act (ERISA) Section 502(a)(2).

The court denied Cook’s motion to reconsider the case.

The opinion in Cook, et.al. v. Campbell is here.

Deals & People May 15, 2008

Merrill To Close Florida Consulting Practice as Result of Controversy

Merrill Lynch Consulting Services is closing down its Florida pension advisory practice.
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The Institutional Investor Money Management Letter reported that Merrill has sent letters to all its clients terminating their contacts. According to the news source, Merrill announced in December that the Securities and Exchange Commission (SEC) had started an investigation into its Florida consulting practice and Senior Vice President Michael Callaway (see SEC Looks into Merrill’s Florida Pension Consultancy Practice). The announcement was followed by a string of personnel departures.

“People have chosen to leave, and that impedes our ability to provide the same level of excellent service that our clients expect from us,” said Merrill spokesman Mark Herr, according to the news report. “We are working with them on a transition to other consultants.’

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The Miami Herald reported in December that the board of trustees for South Miami’s pension plan filed an arbitration claim alleging that, rather than looking out for the interests of city employees, Merrill Lynch pursued an investment strategy intended to generate excessive fees and commissions. Soon after, Jacksonville Police and Fire Pension Fund trustees announced the termination of the fund’s contract with Merrill. Callaway, head of the Florida consulting business, took a leave of absence. (see South Miami Pension Trustees File Claim over Merrill Consulting Practices)

Merrill has denied any wrongdoing, the news report said.

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