On January 14, 2020, the Supreme Court of the United States decided Retirement Plans Committee of IBM v. Jander, No. 18-1165, remanding the case to the Second Circuit Court of Appeals to decide whether to address the views of the U.S. Securities and Exchange Commission (SEC) on the standard to allege breach of fiduciary duty involving inside information under the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001, et seq. (ERISA).
ERISA claims for breach of the duty of prudence for plan fiduciaries, based on inside information, are governed by the 2014 Supreme Court decision, Fifth Third Bancorp v. Dudenhoeffer. There, the Court held that the plaintiff must plausibly allege an alternative action that the defendant could have taken both (1) consistent with securities laws, and (2) that a prudent fiduciary in the same circumstance would not have viewed as more likely to harm the fund than to help the fund.
The Court then instructed lower courts to conduct the following three-pronged analysis in assessing such complaints:
- That the duty of prudence does not require a fiduciary to break the law and thus could not require a fiduciary to take action that would violate the securities laws.
- If the complaint faulted the fiduciary for failing to decide, based on inside information, to refrain from buying certain stock or electing not to inform the public, the extent to which imposing that obligation under ERISA could conflict with the complex insider trading and corporate disclosure requirements imposed by the federal securities laws or with the objectives of those laws.
- Whether the complaint plausibly alleges that a prudent fiduciary could not have concluded, based on the inside information, that ceasing stock purchases or publicly disclosing the negative information would cause more harm than good to the fund by potentially causing the stock’s value to decrease.
The Supreme Court granted certiorari to consider the allegations necessary to plead that a prudent fiduciary would not have viewed the alternative action as more likely to harm, than help, the fund. Because the plan fiduciaries and the government (presenting the SEC’s views) focused their briefing on issues not addressed by the Second Circuit, the Supreme Court remanded the case to give the Court of Appeals an opportunity to decide whether to entertain these arguments, including the SEC’s view that the ERISA-based duty to disclose inside information that plaintiffs are proposing, when securities laws do not otherwise require disclosure, would conflict with at least the objectives of insider trading and corporate disclosure laws.
The Court issued the opinion per curiam with Justice Kagan, joined by Justice Ginsburg, concurring and Justice Gorsuch concurring separately.