A Towers Watson survey of of 160 sponsors that offer company stock in 401(k) plans shows more than a quarter already have begun eliminating the option from their plan, or are considering doing so, after the Supreme Court’s ruling in Fifth Third Bancorp vs. Dudenhoeffer.

The unanimous decision, issued by the high court last summer, established a new precedent for sponsors offering company stock to participants.

Previously, fiduciaries enjoyed a “presumption of prudence” in offering company stock in plans, and successfully deployed the argument in “stock drop” claims.

Between July 2007 and September 2009, Fifth Third’s stock dropped 74 percent, as the bank suffered from exposure to the subprime mortgage market.

That meant a loss of “tens of millions” of dollars to participants in Fifth Third’s defined contribution plan. A class-action action alleged a fiduciary breach under ERISA, as plan trustees continued to offer the investment option, despite the fact that they knew, or should have, that the bank and its stock would suffer from overexposure to bad loans.

The Supreme Court ruled ERISA provides no basis for a “presumption of prudence” for sponsors of Employee Stock Ownership Plans, or ESOPs.

Towers Watson’s survey suggests the ruling has chastened sponsors with company stock in their plans.

Almost 40 percent have retained, or are considering retaining, a third-party fiduciary specifically tasked with monitoring company stock and its appropriateness as an option for participants.

And three-quarters of sponsors are reviewing how they monitor their stock as a plan option internally. That has led to 37 percent making changes to internal monitoring processes, and 41 percent revising their plan statement.

“The Supreme Court’s ruling is consistent with ERISA’s general approach to evaluating fiduciary decisions based on whether a fiduciary has followed a prudent process,” according to the authors of the Towers survey.

“A prudent process will usually include documenting that a plan’s fiduciaries have sought appropriate information, asked pertinent questions and accessed experts when appropriate,” according to the survey.

Instant Insights /

Sponsors reconsider company stock after Fifth Third decision

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