The 11th U.S. Circuit Court of Appeals said “[m]ere stock fluctuations, even those that trend downward significantly, are insufficient to establish” that a fiduciary abused its discretion by continuing to invest in or hold employer securities in compliance with the terms of the plan.” The appellate court agreed with a district court in Georgia that a 16.5% decrease in stock price over a period of more than two months, followed by a rebound in the price a few months later, does not indicate that the undisclosed problem was the type of dire situation which would require defendants to disobey the terms of the plan by not offering the company stock fund or by divesting the plan of Home Depot securities (see “Home Depot Cleared in Stock Drop Suit”).
Even accepting all of the allegations in the complaint as true and viewing all of the facts in the light most favorable to the plaintiffs, the 11th Circuit found the defendants could have reasonably believed that the plan’s settlors would have intended that their instructions be followed in the circumstances involved in this case. Settlor directions in retirement plans, like those in trust instruments, are usually designed for the long haul. Market timing is not how prudent pension fund investing usually works, and there is nothing in the Home Depot plan to indicate that those who created it intended for fiduciaries to disregard their instructions based on short-term events and fluctuations in the market, the court said.
The 11th Circuit noted that its decision does not disadvantage plan participants compared to shareholders generally. Instead, it refuses to provide participants with an unfair advantage over other shareholders. Just as plan participants have no right to insist that fiduciaries be corporate insiders, they have no right to insist that fiduciaries who are corporate insiders use inside information to the advantage of the participants.
The Department of Labor had urged the court to reach a different conclusion, saying that the lower court’s decision relied on a presumption of prudence, established in Moench v. Robertson, which has no basis in the Employee Retirement Income Security Act’s (ERISA's) language or purposes (see “DOL Disputes Home Depot’s Win in Stock Drop Suit”). The 11th Circuit’s decision is available at http://www.ca11.uscourts.gov/opinions/ops/201013002.pdf.