James Hazlehurst wrote an article published in The Daily Journal on June 12, 2013, that discussed the Ninth Circuit Court of Appeals ruling in Harris v. Amgen that limited the protections from liability for ERISA pension plan fiduciaries afforded by the “presumption of prudence” for investments in employer stock.
As Hazlehurst points out, the “presumption of prudence” developed out of the tension between the competing goals of protecting employee pension plan investments and providing loyalty incentives to employees. The prudent investor standard requires plan fiduciaries to diversify investments held by the plan. To allow for employee loyalty incentives through employer stock, Congress created an exception to the diversification requirement for investments in the stock of an employer.
In Amgen, the Ninth Circuit expanded on a previous ruling, Quan v. Computer Sciences Corp., identifying circumstances under which the “presumption of prudence” does not apply. Hazlehurst notes that Amgen is important in defining the limits of the protections afforded by the “presumption of prudence.”
The case clarifies that a company is not protected from liability as a plan fiduciary unless the company exclusively delegates its investment authority under the plan and expressly disclaims that authority.
Without that delegation and disclaimer, Hazlehurst continues, the company may be liable for plan losses as a fiduciary.
Thus Amgen illustrates why companies should not only be concerned with running afoul of securities law for material misrepresentations and omissions in connection with the sale of their stock. Those same activities may expose the company to liability for pension plan losses where the company has not adequately delegated and disclaimed its investment authority under the plan and is not otherwise protected by the “presumption of prudence.”