In Amgen v. Harris,¹ the Supreme Court for the second time considered whether the plan participants sufficiently stated a claim against the plan fiduciaries for breach of fiduciary duty under ERISA by continuing to provide Amgen common stock as an investment alternative in the Amgen plans when they knew or should have known the stock was being sold at an artificially inflated price based on inside information.

The Court concluded that the Ninth Circuit Court failed, upon remand, to properly evaluate the complaint in light of the Court's prior ruling in Fifth Third Bancorp v. Dudenhoeffer² on prudent fiduciary pleading standards. The Ninth Circuit Court generally concluded that the complaint met the Fifth Third standards because the federal securities laws require plan fiduciaries to disclose material information and such disclosure plausibly could cause the stock price to decline more than it would have declined had the fiduciaries merely withdrawn the fund as an investment option as the participants alleged they should have done. However, as the Court found, it failed to assess whether the complaint itself "plausibly alleged" that a prudent fiduciary in the same position could have concluded that this alternative action (removing the stock as a plan investment option) would do less harm than good—rather than summarily concluding so. Finding no sufficient facts and allegations within the complaint to support the circuit court's conclusion, the Court reversed and remanded to the district court to determine whether the plan participants may amend the complaint in order to adequately state a claim for breach of the duty of prudence under the Fifth Third standards.

Impact to Plans and Fiduciaries

The Court's unwillingness to allow the circuit court to rely on general assessments of potential market conditions underscores the stringent pleadings standards the Court expects in these stock drop cases—not only for ESOPs (employee stock ownership plans), but also individual account plans that allow company stock as an investment option. The order is also another step in the continuing evolution of what, practically, constitutes adequate pleading in these cases. As always, plans and their fiduciaries should consider adopting a monitoring process to regularly evaluate whether the continued offering of an employer stock fund is prudent in appropriate cases, and also assess whether appointed plan fiduciaries will be privy to inside information.

¹The Court issued its per curiam order on January 25, 2016.
²573 U.S. __ (2014).