Dudenhoeffer Eschews Moench Presumption But Encourages Careful Scrutiny Of Complaints: Future for ERISA Stock-Drop Litigation Is Unclear

June 30, 2014

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. For nearly twenty years, the federal courts have recognized the so-called “Moench presumption” under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), in favor of decisions by ESOP fiduciaries to acquire and hold company stock. The Moench presumption, which first appeared in the case of Moench v. Robertson, has been invoked to achieve the dismissal of numerous “stock-drop” cases asserting that fiduciaries are liable under ERISA for declines in the value of company stock held under ESOPs and similar plans. Under Moench, lower courts generally have held that a fiduciary’s decision to invest in such stock may in certain cases be presumed to be prudent absent evidence to the contrary.

In Dudenhoeffer v. Fifth Third Bank, decided last week, the Supreme Court unanimously declined to recognize the existence of the Moench presumption.

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