US Supreme Court to Review “Presumption of Prudence” that Favors Fiduciaries of ERISA Plans that Hold Employer Stock

February 27, 2014

The Supreme Court has agreed to hear the case of Fifth Third Bancorp v. Dudenhoeffer, in which the Sixth Circuit Court of Appeals, in response to a motion to dismiss, declined to adopt a presumption of prudence in favor of a plan fiduciary’s investment in employer stock under a retirement plan governed by the Employee Retirement Income Security Act of 1974 (“ERISA”). Certain retirement plans, such as employee stock ownership plans (“ESOPs”), are specifically designed to invest all or a portion of their assets in stock of the sponsoring employer. Generally, under ERISA, a plan fiduciary must act prudently with respect to the fiduciary’s investment decisions for the plan. Prior to Dudenhoeffer, six federal appellate courts, including the Sixth Circuit, had stated generally that an ERISA plan’s investment in employer stock is presumed prudent if the plan documents expressly provide for such investment.

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