Court Finds Employees Missed ERISA Fiduciary Breach Case

April 17, 2007 ( - A large drop in the share price of a company's stock doesn't necessarily mean an employer should dump the company stock as a retirement plan savings option, a judge has ruled.

With that ruling, U.S. District Judge Joel A. Pisano of the U.S. District Court for the District of New Jersey said employees at telecommunications company Avaya did not prove the firm had breached its Employee Retirement Income Security Act (ERISA) fiduciary responsibilities by keeping the stock in the plans.

In addition, the employees alleged that Avaya and its plan fiduciaries breached their ERISA duties by failing to adequately monitor the plans’ investment options and by allowing Avaya stock to remain as an option when it was imprudent.

Pisano pointed out that the plans mandated that the Avaya Stock Fund be included as an option. So, Pisano asserted, like employee stock ownership plans, the retirement savings plans were entitled to a presumption that it was reasonable to continue investing in Avaya’s stock.

A large share price drop did not change this presumption, the court said. “[A] decline in the price of a company’s stock, even a significant decline, is not sufficient, absent allegations of other circumstances such as fraudulent conduct or knowledge of the company’s impending collapse,” the court said.

The court went on to dismiss the employees’ claim that the plan fiduciaries breached their duties by selecting the Avaya Stock Fund as an option without conducting an adequate investigation and by allowing it to remain despite its poor performance and extreme volatility.

According to the ruling, Avaya was established in September 30, 2000, through a spinoff from Lucent Technologies Inc. Employees of Avaya participated in three different pension plans, all of which allowed employees to invest in the Lucent Stock Fund and the Avaya Stock Fund.

Ward v. Avaya Inc.,D.N.J., No. 06-1721 (JAP), 4/13/07.