In DiFelice v. US Airway, the Virginia court said US Airways provided several educational materials to participants detailing their responsibility to select their investments and urge them to diversify investments. The company also warned participants of the risk of investing in company stock, according to the opinion.
The opinion also presents a memo the company sent to employees following the September 11, 2001 terrorist attacks wherein it informed employees of its desperate financial situation and said, “While bankruptcy is not imminent, it is not impossible,â€¦”
In addition, an independent consultant hired by US Airways, Fiduciary Counselors, sent notice to participants that it had directed Fidelity Investments to refrain from purchasing company stock with participant deferrals. Fiduciary Counselors and Fidelity were cleared of Employee Retirement Income Security Act (ERISA) fiduciary breach charges against them in previous court decisions (See Court Clears Independent Fiduciary of ERISA Breach in USAir Case and Directed Trustees Not Expected to Second Guess ).
In its opinion, the court cited a previous 5 th Circuit ruling, which determined high-risk securities are an appropriate investment option in a diversified portfolio of investments. The court noted that during the class period in question at the trial, US Airways continued to provide 13 investment options to participants, ranging from high-risk to low-risk. Given this, and the participants’ sole authority to direct their investments, the court determined US Airways did not breach its fiduciary duties under ERISA to plan participants.
In Summers v. State Street Bank & Trust Company , the plaintiff claimed State Street, as directed trustee for the United Airlines Employee Stock Ownership Plan (ESOP), violated its ERISA fiduciary duties by continuing investments in company stock.
The appellate panel rejected the plaintiff’s argument that State Street should have sold United stock following a letter in October 2001 from the company’s then-CEO projecting the company’s financial doom. The court said market prices following the issue of the letter did not drop to a level signifying impending bankruptcy and State Street was not imprudent in using market prices to determine the value of the investment.
According to the court, State Street was not obligated to second-guess the market was overvalued. While directed trustees are required to act under prudence, they have no obligation to determine the prudence of decisions handed to them by the fiduciary which directs them.
Further, the court said that by plan definition and provisions, an ESOP is required to invest in company stock. Any decision by a directed trustee to choose another investment must be taken with care as it goes against the plan and ERISA.
The court found that State Street did not breach its fiduciary duties.
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