CINCINNATI - A 6th U.S. Circuit Court of Appeals held that fiduciaries to an employee stock ownership plan didn't breach their duties when they kept the same amount of stock in the plan while the stock value dropped 80% over an 18-month period.
In Kuper vs. Quantum Chemical Corp., the court said that fiduciaries did not breach the 1974 Employee Retirement Income Security Act because any prudent fiduciary probably would not have acted any differently than the actual fiduciaries.
In January 1988, Quantum Chemical Corp., New York, amended its plan to include an employee stock ownership feature. The first of two plans was a 401(k) plan where, out of three investment options, employees could choose to invest in company stock. The second plan was an ESOP where contributions were invested in Quantum stock.
In March 1989, Quantum sold its Emery division to Henkel Corp., Gulph Mills, Pa. With the agreement, Henkel accepted a trust-to-trust transfer of the employee benefit plan assets, including the savings plan and ESOP funds of those Quantum employees who then worked at Henkel. The transfer was not made until September 1990. During that time, the Quantum stock value decreased to about $10 from $50 per share.
Some employees affected by the transfer filed suit, saying the fiduciaries should have sold the stock. But the court said the fiduciaries had reason to believe the price might rebound.
Also, Quantum's board of directors decided to do the transfer, so the court held fiduciaries should not be held liable for the decision.
