While there are already plenty of reasons why companies may not want to include their own stock in their ERISA plans, the U.S. Supreme Court just gave them another. A unanimous decision by the Court in the Fifth Third court case clearly puts fiduciaries on notice that the so-called Moench presumption is no longer valid and will not give them special protection for the use of company stock.
The Court stated that the strong and important ERISA doctrine of prudence in the selection and monitoring of investments, including company stock, should not be outweighed by concerns about meritless or burdensome lawsuits against plan fiduciaries — and that a presumption of prudence, which basically quells any lawsuits, is not an appropriate remedy.
On the other hand, plan fiduciaries are not required to violate insider trading laws if they know that non-public information will affect the company’s stock price — information that, if publicly available, might cause a prudent investor to act. According to ERISA legal expert Tom Clark, “…the practical effect is that the Supreme Court is sending this case back to the Sixth Circuit for them to decide whether they can find a plausible claim…” without the protection of the Moench presumption.
For companies that do wish to include company stock in their ERISA plan, the solution might be to hire an independent fiduciary to oversee it. Practically speaking, there might be a rush to get rid of this conflicted investment altogether.
