The Employee Retirement Income Security Act (ERISA) only requires overall plan level investment diversification. That was the ruling from the 2nd U.S. Circuit Court of Appeals in a case discussing a fiduciary’s responsibility to properly diversify plan investments. Hearing the case were Circuit Judges Rosemary S. Pooler and Sonia Sotomayor and U.S. District Judge Mark R. Kravitz, of the U.S. District Court for the District of Connecticut.
The appellate judges upheld a lower court ruling dismissing the suit that named General Motors Investment Management Corp. (GMIMCO) as a defendant after finding participants had filed it past the applicable legal deadline. However, in agreeing that the participants’ suit should be thrown out, the appellate panel focused instead on what it said were unsubstantiated legal claims that the inclusion of the single-equity funds violated ERISA Section 404(a)(1)(C)“s diversification requirements.
“The complaint’s narrow focus on a few individual funds, rather than the plan as whole, is insufficient to state a claim for lack of diversification,” the appellate court said.
In addition, the court found that the participants could not continue with their claim that GMIMCO knew or should have known that the fees and expenses it paid for mutual funds in which it invested were excessive compared with alternative investments. The court said the participants did not provide a basis on which it could infer that GMIMCO’s offering of the funds was a fiduciary breach.
The suit covered four GM defined contribution plans, the:
- General Motors Savings-Stock Purchase Program for Salaried Employees in the United States
- General Motors Savings Plan for Hourly-Rate Employees in the United States
- General Motors Income Security Plan for Hourly-Rate Employees
- Saturn Individual Savings Plan for Represented Members.
The disputed fund options included the:
- EDS Common Stock Fund
- DIRECTV Group Common Stock Fund
- News Corporation Non-Voting Common Stock Fund
- Delphi Common Stock Fund
- Raytheon Common Stock Fund.
The ruling is available here.