A federal District Court judge in New York has dismissed a stock-drop claim by participants of an International Business Machines Corp. 401(k) plan, saying they failed to show how a prudent fiduciary could have taken different actions without causing more harm than good.
The ruling by District Court Judge William H. Pauley III on Sept. 29 was the second time the court had dismissed a stock-drop claim in the case of Jander et al. vs. The Retirement Plans Committee of IBM et al. The judge had dismissed the complaint in September 2016, saying the plaintiffs had failed to state a claim for breach of fiduciary duty.
Mr. Pauley noted that he allowed plaintiffs to replead the case so they could present facts with "greater specificity," regarding allegations that participants' holding of IBM stock was damaged when IBM sold its microelectronics business in October 2014 and took a $2.4 billion write-down of assets.
The participants allege IBM's 401(k) managers could have taken several steps to protect their retirement accounts.
"Beyond a rote explanation of how those alternative actions would have mitigated the harm (to their accounts), the complaint is bereft of context-specific details to show how a prudent fiduciary would not have viewed the proposed alternatives as more likely to do more harm than good," Mr. Pauley wrote.
"The complaint suffers from the failure to consider how a prudent fiduciary, when confronted with the inevitability of disclosing the impending sale of the microelectronics business would have accounted for the potential ill effects resulting from a premature disclosure," Mr. Pauley wrote.
The Dudenhoeffer standard "requires a balancing of the countervailing outcomes to an alternative action under the circumstances," Mr. Pauley wrote. When plaintiffs make a claim, "courts should not be left guessing" whether a prudent fiduciary would have acted differently, he added.
The IBM 401(k) Plus Plan, Armonk, N.Y., had $48.4 billion in assets as of Dec. 31, 2016, according to the latest Form 5500 filed with the Labor Department.