Yesterday, the Fourth Circuit affirmed a judgment that exonerated ERISA retirement plan fiduciaries for offering company stock as an investment option. The bankruptcy of U.S. Airways wiped out the value of the stock. The district court found after a bench trial that fiduciaries acted prudently in the face of turmoil and uncertainty during the post-9/11 era. DiFelice v. U.S. Airways, Inc., No. 06-1892 (4th Cir. Aug. 1, 2007).
Blawgletter recalls that the trial victory in DiFelice warmed the cockles of defendants in other ERISA stock fund cases. But we figure that the Fourth Circuit’s opinion will give them a chill or two. The court held, for example, that:
- The "safe harbor" under section 404(c) has a narrow scope. "[A]lthough section 404(c) does limit a fiduciary’s liability for losses that occur when participants make poor choices from a satisfactory menu of options, it does not insulate a fiduciary from liability for assembling an imprudent menu in the first instance." Slip op. at 8 n.3.
- Insider trading or efforts to prop up the stock’s value would support a breach of loyalty finding. Slip op. at 15.
- "[A] fiduciary must initially determine, and continue to monitor, the prudence of each investment option available to plan participants. . . . [A] fiduciary cannot free himself from his duty to act as a prudent man simply by arguing that other funds, which individuals may or may not elect to combine with a company stock fund, could theoretically, in combination, create a prudent portflio." Slip op. at 17 (emphasis in original) (footnote omitted).