The Ninth Circuit Revisits - and Limits - the "Presumption of Prudence" For ERISA Fiduciaries

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Earlier this week, the Ninth Circuit Court of Appeals ruled in Harris v. Amgen that an ERISA pension plan fiduciary is not protected from liability under the “presumption of prudence” for company stock investments where the plan offers – but does not require – investment in company stock and places restrictions on company stock purchases. 

In 2007, Amgen’s stock lost significant value due to safety concerns over drugs it developed for the treatment of anemia. Before 2007, Amgen allegedly knew or should have known that its stock price was artificially inflated due to material misrepresentations and omissions in connection with the anemia drugs and illegal sales of the drugs. Following the stock’s decline, participants in Amgen’s ERISA-governed pension plans sued for violations of the plan administrator’s fiduciary duties. Defendants filed a motion to dismiss, which the district court granted.   

Under the “presumption of prudence,” an ERISA fiduciary is entitled to a presumption that it has been a prudent investor with respect to company stock when the plan terms require or encourage investment primarily in company stock. See Quan v. Computer Sciences Corp., 623 F.3d 870 (9th Cir. 2010). 

The Ninth Circuit reversed the district court’s ruling that this presumption applied in Amgen. While the plan allowed fiduciaries to offer company stock as an investment choice, it did not require or encourage investment in company stock. To the contrary, the plan terms could be read to discourage investment in company stock by restricting the amount that could be purchased and by limiting the frequency and timing of sales. 

The court also reversed the district court’s ruling that Amgen could not be sued as a fiduciary. Although Amgen delegated investment authority to trustees and investment managers, the grant of authority was not exclusive, and Amgen still retained control over investment decisions. Therefore, without an exclusive grant of authority, Amgen could still be sued as a plan fiduciary.