Eleven percent of employers offering company stock in their defined contribution plans have hired independent fiduciaries to monitor the investment option since a Supreme Court ruling in June on stock-drop lawsuits, a report by Towers Watson said Tuesday.
Another 27% of these employers said they are considering hiring a third party to monitor company stock in their DC plans.
The responses are based on a March survey of 160 employers offering a company stock investment option that were asked how their company-stock policies have changed since the Supreme Court's decision in Fifth Third Bancorp et al. vs. Dudenhoeffer et al. In that unanimous decision, the court struck down a popular and successful defense used by DC plans to defeat stock-drop suits — litigation against the plans claiming fiduciary breach of duty when a company's stock price declined.
In rejecting the so-called Moench presumption, or presumption of prudence, the court also offered some suggestions for lower courts to evaluate stock-drop complaints to determine if they should go to trial, emphasizing “careful, context-sensitive scrutiny” of allegations against a DC plan.
“There's some activity (by DC plans), but it's not huge,” Robyn Credico, defined contribution practice leader for Tower Watson, said in an interview. “A lot of companies aren't doing anything.”
Ms. Credico predicted that executives whose plans hold company stock might delay acting until lower courts start issuing rulings on stock-drop cases based on the Supreme Court's recommendations.
The Towers Watson survey found that since the court's ruling, 1.2% of DC plans are in the process of eliminating company stock as an investment option, 2.5% are planning to initiate a procedure to eliminate company stock and 21.9% are considering eliminating company stock, Ms. Credico said.
Since the court's ruling, the survey also found that 76% of plan executives have reviewed or plan to review their procedures for monitoring stock. Of those that have completed the review, 37% have changed or will be changing procedures. Also, 74% have reviewed or plan to review their investment policy statement. Of those that have completed the review, 41% have revised or plan to revise the statement.
