The practice of throwing company shares into retirement plans has been waning for some time, but a recent Supreme Court decision could hasten its demise.
In Fifth Third Bancorp vs. Dudenhoeffer, the court last month unanimously rejected the notion that fiduciaries of employee stock ownership plans are protected by a presumption of prudence known as the Moench Presumption. Instead, the justices decided that ESOP fiduciaries are bound by the same level of duty that governs other ERISA fiduciaries — with the exception that they are not required to diversify the assets of a fund.
In other words, the court stripped away a key protection that ESOP fiduciaries have used to shield themselves against suits alleging they should have known better and done more to protect employees against declines in the value of company shares in their retirement plans.
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