White Paper Warns of Retirement Plan Company Stock Holdings

April 18, 2005 (PLANSPONSOR.com) - A white paper from the Chubb group of Insurance Companies warns that having company stock in a employee stock ownership plan (ESOP) or 401(k) plan leaves fiduciaries vulnerable to lawsuits.

The white paper – “The Perils of Holding Company Stock in Sponsored Plans” – provides companies with an overview of the current regulatory and legal environment. It also attempts to give steps that may help a company mitigate its fiduciary liability exposure.


According to the white paper, the potential for liability in such cases can amount to billions of dollars (See Just out of Reish: Taking Stock ). As case law continues to evolve on the subject, companies should consider taking steps to reduce the potential for litigation and liability awards, the paper warns.  In order to do so, the paper suggests that employers:

  • look at whether plan investment in company stock makes sense for the company and how those objectives rank when compared to the potential liability exposure.  Plan documents should clearly state that the employer wants to include company stock in the plan, if the employer does in fact choose to do so.
  • develop a clear fiduciary structure, considering the exclusion from fiduciary positions those individuals who are likely to have material, non-public information about the company.
  • look at if it is necessary to periodically review the prudence of the plan investment in company stock. If a company decides to conduct a review or if an event triggers the need for a review, develop a list of factors to be reviewed. Companies should determine whether it would be beneficial to obtain independent advice or management or legal counsel, according to the white paper.
  • communicate clearly when discussing company stock with employees.  The employer should be able to show that participants were clearly advised of the risks inherent in a company stock option and were encouraged to consult personal financial advisors regarding their investment decisions, the white paper warns.

The white paper can be found online at  http://www.chubb.com/businesses/csi/chubb3650.pdf .

The Chubb Group of Insurance Companies provides property and casualty insurance for personal and commercial customers.