Energy Firm Cleared of Co Stock Fiduciary Breach

February 2, 2006 ( - A federal judge in Texas has cleared Reliant Energy of charges that it breached its fiduciary duties under the Employee Retirement Income Security Act (ERISA) by keeping company stock as a retirement plan investment option even after it was no longer prudent.

US District Judge Nancy Atlas of the US District Court for the Southern District of Texas rejected plaintiffs’ arguments that from August 1999 through May 2002, Reliant stock was an imprudent investment, BNA reported. The plan participants charged that the stock should have been dropped from the defined contribution plan because Reliant was engaged in “round-trip” energy trading that artificially increased the company’s revenue and trading volume.

Atlas asserted that Reliant and members of the plan’s administrative committee had no authority to remove Reliant stock as an investment option because the plan clearly stated that Reliant stock must at all times remain an investment option.   “In this case, the Benefits Committee members had no discretion whether to offer the [Reliant Stock Fund] as an investment option,” Atlas asserted, adding that the members had a fiduciary duty to enforce the plan in accordance with its terms.

Atlas also turned aside claims that Reliant breached its fiduciary duties by allegedly making misrepresentations in Securities and Exchange Commission (SEC) forms. According to the court, by filing the SEC forms, Reliant was not acting in connection with the management or administration of its pension plan, and therefore was acting solely as the issuer of stock rather than in a fiduciary capacity.

According to the court, the plan offered participants the opportunity to contribute up to 16% of their compensation to the plan. The plan offered a number of investment options, including the Reliant Energy Common Stock Fund. The plan also had an employee stock ownership plan component under which Reliant made matching contributions in the form of Reliant stock, according to the ruling.

The case is In re Reliant Energy ERISA Litigation, S.D. Tex., No. H-02-2051, 1/18/06.