The U.S. Supreme Court on Monday declined to hear an appeal by participants in two General Motors 401(k) plans who argued that the independent fiduciary for a company stock fund violated its ERISA duties.
The court did not comment on its decision in the case of Pfeil et al. vs. State Street Bank & Trust Co. The participants only sued the fiduciary, State Street — not General Motors.
The participants filed a petition with the Supreme Court in March asking the justices review State Street’s actions after GM’s stock declined in 2008 during the financial crisis.
They submitted their appeal based on a pro-State Street ruling in November 2015 by the 6th U.S. Circuit Court of Appeals in Cincinnati. The appeals court upheld a U.S. District Court in Detroit judge’s summary judgment for State Street in 2014 regarding its stock-fund management.
In a 2-1 ruling, the appeals court wrote that State Street “repeatedly discussed at length whether to continue the investments in GM,” adding State Street’s decision-making reflected a “prudent process.”
The participants alleged State Street failed to acknowledge that GM stock had become an “imprudent” investment as early as July 2008. Instead, State Street waited until March 2009 to begin selling the GM stock “after it had lost most of its value, causing catastrophic losses to the plans,” the participants’ petition said.
The petition added that General Motors had warned in November 2008 that its auditors said they could have “substantial doubts” about GM’s ability “remain as a going concern.”
State Street filed a response with the Supreme Court in May, saying that during the financial crisis “State Street vigorously monitored and evaluated GM stock.” In addition, State Street received “input from outside financial and legal advisers hired to consult on the GM fund,” the petition said.
State Street froze purchases of GM stock for the stock fund on Nov. 8, 2008, and sold the fund’s GM stock beginning on March 31, 2009, “several months before GM filed bankruptcy court reorganization proceedings,” according to the State Street petition.
“No one was invested in company stock by default,” State Street added. “Participants only invested in the GM fund if they chose to do so, and they were free to move their money into another investment option whenever they wanted.”