Mostly Good News for Defendants in ERISA Stock-Drop Cases

Most public companies offer their own stock as one investment option in their 401(k) plans. Over the past several years, many have seen some of their stock price drop, even if it later rebounded. These circumstances are often enough to prompt lawyers to target a company for an ERISA “stock drop” lawsuit, claiming that plan fiduciaries should not have allowed investments in company stock during periods of price decrease, and should have provided much more cautionary information to participants, perhaps even non-public inside information. Courts have become increasingly skeptical of such claims absent compelling facts, and are increasingly willing to dismiss them on the pleadings alone. Several recent decisions continuing the trend favoring defendants are particularly worth noting.

The leading case establishing a higher standard for suing plan fiduciaries in relation to company stock is Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995). Moench recognized a “presumption of prudence” when plan fiduciaries allow company stock as an investment option. See id. at 571. Rebutting that presumption requires a substantial showing. Id. Moench has been followed by most circuit courts of appeal. In the 15 years since Moench, litigation has focused on a number of key issues, all of which have been the subject of very recent cases...

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