To some, the stock market's precipitous decline in recent years might make the International Union of Operating Engineers Local 825 Pension Fund's investment strategy seem prescient. But the 3rd U.S. Circuit Court of Appeals disagreed.
In a precedent-setting case, the court in Philadelphia awarded $8 million ($5.5 million net of lawyers' fees) to the pension fund, rejecting the trustees' appeal that their strategy of investing practically all the fund's assets in fixed income was ultraconservative. The court agreed with the plan participants who had sued the trustees, alleging that their failure to appoint professional money managers and diversify the assets into equities during the booming 1990s had cost the Newark, N.J.-based pension fund more than $150 million.
In fact, shortly after the participants filed the lawsuit in September 1999, the trustees implicitly acknowledged their mistake by hiring professional money managers, said Louis R. Moffa, the partner in the Cherry Hill, N.J., office of Schnader Harrison Segal & Lewis LLP, who represented the plaintiffs.
"Unless they considered all reasonable and prudent alternatives for their asset mix, they weren't doing their job as fiduciaries," Mr. Moffa said.