In dismissing the stock drop challenge, the judge offers an illuminating review of what is required by ERISA’s duty of prudence; discussion of counts alleging breaches of the duty of loyalty and the duty to monitor is much briefer.
According to one experienced capital markets attorney, the SEC’s move this week to amend Securities Act Rule 701 is an important one and could lead to more private employers issuing equity compensation.
Not only does the lawsuit claim ConocoPhillips stock does not meet ERISA’s definition of “employer securities,” but it says participants suffered millions of dollars in losses as the stock price dropped dramatically.
Employees say they use company stock acquired through their ESPP to help pay down debt, add to their retirement savings, finance real estate or home improvement projects, or simply set aside for a rainy day.
The lawsuit alleges that even if the plan required that Sears Stock be offered, the plan’s fiduciaries were obligated by law to disregard that directive once it became clear company stock was no longer a prudent investment for the plan.
A court found eliminating ESOP participants’ right to invest in company stock is not a violation of ERISA’s anti-cutback provisions, but forcing participants with balances greater than $5,000 out of the plan may be.