The appellate court's decision to reinstate the lawsuit suggests employers might have a tough time convincing higher courts to dismiss lawsuits over employer stock in retirement plans, said a pension lawyer advising corporations who did not wish to be identified. R.J. Reynolds had a strong argument in its favor — that carrying out plan amendments are not fiduciary duties — and if that did not survive appellate review, "you've got to be pretty pessimistic about the chances for dismissal," the source said.
Other lawyers representing corporations said that if the case is decided in favor of participants, plan sponsors might reconsider offering employer stock in retirement plans at all.
Plan sponsors in the past typically offered employer stock in retirement plans to give participants a tax-sheltered way of participating in the growth of the corporation.
Employers "are thinking about it. It begins to not be worth it," said Richard "Brick" Susko, partner in the New York law firm of Cleary, Gottleib, Steen & Hamilton, who advises plan sponsors.
In its decision, the appellate court noted that two amendments to the plan, made on June 14, 1999, and Nov. 19, 1999, required the trustees to freeze the two Nabisco stock funds and prohibit new contributions to them, but did not require the trustees to eliminate the two investment options and liquidate participants' holdings.
According to the appellate court, the amendments required the trustees to freeze the two Nabisco stock funds through Jan. 31, 2000, six months after the breakup of the company. But, because the investment committee could add investment options to the plan on or after Feb. 1, 2000, the trustees could have chosen to re-offer the Nabisco funds as investment options in the plan on that date, even though they were no longer employer stock.
"In other words, the amendments did not require the elimination of the Nabisco funds from the plan, nor did they require the sale of the Nabisco stocks," the appellate court's Dec. 14 ruling stated.