The U.S. Supreme Court heard oral arguments April 2 in the Fifth Third Bank stock drop case. The heart of the issue is the duty of plan fiduciaries when managing company stock as a plan investment on behalf of their employees and whether the so-called Moench presumption of prudence should continue to exist.
Justice Anthony Kennedy asked a question that gets to the heart of the dilemma: Is it common for company insiders like directors and officers to be trustees of the retirement plan, or do most companies outsource it? In the Fifth Third case, plan participants sued the bank after its stock price dropped 75% between July 2007 and September 2009 as a result of risky mortgages. The plaintiffs claimed that the trustees knew that these loans would affect the stock but did nothing.
So if a trustee is aware of non-public news that will significantly affect the share price of company stock, does the trustee have a duty to take action — risking a claim of insider trading that benefits only shareholders within the plan? We may have an answer to that question in June.
