A federal appeals court in New Orleans has upheld a lower court's dismissal of a complaint by participants in a Phillips 66 Co. 401(k) plan that fiduciaries violated their ERISA duties in managing a stock investment within the plan.
"Plaintiffs claim that holding a single-stock fund is imprudent per se because of the risk inherent in holding an undiversified asset," the three-judge panel wrote on May 22. "But ERISA contains no prohibition on individual account plans' offering single-stock funds."
The participants sued Phillips 66 fiduciaries in October 2017, alleging ERISA violations by keeping a large amount of stock from the company's former parent, ConcoPhillips Co., as a plan option.
They alleged that the 401(k) plan held $1 billion, or 25% of plan assets, starting May 1, 2012 through the filing of the lawsuit. This amount exposed participants "to extreme volatility and risk," the complaint said.
The plan also held Phillips 66 common stock, which wasn't cited in the lawsuit. Phillips 66 was spun off as an independent company on April 30, 2012.
At the time of the spinoff, the former parent transferred about $2.9 billion in assets to the Phillips 66 plan, including an aggregate of $1 billion in two ConocoPhillips stock funds, the complaint said. "A prudent fiduciary considering the prudent diversification of the (Phillips 66) plan as a whole would have removed ConocoPhillips stock," the original lawsuit said.
In May 2018, a U.S. District Court judge in Houston dismissed the case of Schweitzer et al. vs. the Investment Committee of the Phillips 66 Savings Plan et al. "Plaintiffs fail to state a claim for failure to engage in an adequate process for evaluating the prudence of continuing to hold the ConocoPhillips funds," the judge wrote.
The judge noted that Phillips 66 participants couldn't make new investments in ConocoPhillips stock and they could sell existing shares without restrictions.
The appeals court wrote that plan fiduciaries provided adequate information to participants about diversified investing.
"By closing the ConocoPhillips funds to new investments immediately after the spinoff, the fiduciaries also ensured that they were not offering participants an imprudent investment option," the appeal court judges wrote.
"Plaintiffs were free to sell off their investments at any time and reinvest in other funds," the judges wrote. "They cannot enjoy their autonomy and now blame the fiduciaries for declining to second guess that judgment."
The Phillips 66 Savings Plan had $4.87 billion in assets as of Dec. 31, 2018, according to the latest Form 5500.