All eyes in the retirement plan industry are focused on the U.S. Supreme Court, awaiting a decision that might have wide ramifications for companies that offer their own stock as an investment choice in 401(k) accounts. Arguments will begin in March.
At issue in Fifth Third Bancorp v. Dudenhoeffer is whether the presumption that employers act prudently when offering their own stock will remain a guiding principle. The 6th Circuit Court of Appeals ruled, contrary to other courts, that there is no such presumption.
The Department of Labor, for instance, urged the court to uphold the decision. On the other hand a group of trade associations including the U.S. Chamber of Commerce and the Plan Sponsor Council of America have taken up the bank’s cause.
“Obviously, we believe that the 6th Circuit erred when it diverged from other circuits,” said Ed Ferrigno, vice president of Washington affairs for the council.
“You’re damned if you do and damned if you don’t,” Ross said, referring to lawsuits that have been filed against companies that were said to have sold off company stock too soon.
One such case involved W.R. Grace, which along with State Street Bank, was accused of breaching its fiduciary duty by selling stock at an imprudently low price while it went through bankruptcy.