ESOP Investment in Company Stock OK

August 13, 2002 ( - A federal judge turned away participants' claims that the administrator of en Employee Stock Option Plan (ESOP) breached his fiduciary duties by not properly investigating whether the ESOP should continue to hold company stock.

US District Judge Anita Brown for the District of Oregon said claims that the ESOP administrator should have further diversified were likewise off base. The ESOP was actually an individual account plan not covered by ERISA’s diversification requirements, the court ruled.

Plan Design  

Oregon Metallurgical Corp. (Oremet) established an ESOP in 1987. According to the court, the plan documents stated that the plan was both an ESOP and a stock bonus arrangement, according to BNA.

The plan initially allowed participants to sell up to 40% of Oremet shares in their accounts each year as long as they remained employed by Oremet. Participants who left Oremet could withdraw 100% of Oremet stock held in their individual accounts.

The trading price of Oremet stock increased substantially in 1995 and 1996 and Oremet management became concerned that an increasing number of employees would quit to withdraw and sell their Oremet stock, according to the court.

To address this concern, Oremet amended the ESOP to gradually allow employees to sell up to 85% of their Oremet stock. In addition, the company changed the plan to provide that the ESOP’s assets be invested in accordance with a “trust agreement.”

That trust agreement provided that 100% of the ESOP was to be invested in company stock.


In October 1997, Oremet publicly announced it was undergoing a stock-for-stock merger with Allegheny Teledyne. As part of the merger, Oremet shareholders received 1.296 shares of Allegheny Teledyne stock for each share of Oremet stock.

Following the merger, a group of participants submitted a request to the ESOP administrator asking for immediate release of the remaining 15% of Oremet common stock held in their plan accounts.

The administrator refused the participant’s request and by the end of 1998, the ESOP held approximately 93.3% of its assets in the stock of Allegheny Technologies, the successor to Allegheny Teledyne.

According to the court, Allegheny Technologies stock began to decrease and in November 1999, the company instituted a reverse stock split whereby the ESOP and each plan participant received one share of Allegheny Technologies stock for each two shares of Allegheny Teledyne stock held.

A group of participants sued Oremet and the ESOP administrator. The case is Wright v. Oregon Metallurgical Corp., D. Ore., No. CV 01-325-BR, 8/6/02