The U.S. Supreme Court on Friday agreed to revisit the issue of fiduciary prudence in managing employer stock investment options in defined contribution plans.
The Labor Department had petitioned the court to hear a case regarding Fifth Third Bancorp that sought to settle a recent split between judicial circuits on the issue that could make it easier for participants to challenge employers when company stock loses value.
The high court's ultimate decision could make it harder for plan sponsors to offer company stock as an investment option in defined contribution plans, but it could also resolve inconsistencies regarding the practice that have come from lower court rulings.
“This is a case that should be of interest to all sponsors of defined contribution plans, particularly those with employer stock, but even those without,” said Jeremy Blumenfeld, an attorney in the Philadelphia office of law firm Morgan, Lewis & Bockius, which handles similar cases for plan sponsors but isn't involved in this one. “The Supreme Court likely will explore and write about the contours of the obligations that fiduciaries and investment professionals have when selecting and monitoring investments within ERISA plans.”
Plaintiffs in the case against Fifth Third alleged the bank's 401(k) plan fiduciaries breached their duties by allowing participants to continue to invest in the company's stock when its value plummeted by 74%, in part because of the bank's subprime mortgage lending practices.
The order is available on the Supreme Court's website.