Compliance June 5, 2019

IBM Stock Drop Case Makes Its Way to Supreme Court

A district court determined the plaintiffs did not plausibly plead a violation of ERISA’s duty of prudence, because a prudent fiduciary could have concluded that earlier corrective disclosure would have done more harm than good, mirroring many stock drop decisions handed down after the Supreme Court’s decision in Fifth Third Bancorp v. Dudenhoeffer.

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The Supreme Court has accepted IBM’s request to hear Retirement Plans Committee of IBM v. Larry W. Jander. Last March, IBM asked the high court to hear the case after the 2nd U.S. Circuit Court of Appeals reversed the company’s district court win. Plaintiffs allege that IBM imprudently managed company stock investments in one of its retirement plans.

IBM asked the Supreme Court to answer “whether Fifth Third’s ‘more harm than good’ pleading standard can be satisfied by generalized allegations that the harm of an inevitable disclosure of an alleged fraud generally increases over time.”

The lawsuit alleges that the defendants continued to invest retirement plan assets in IBM common stock despite their being aware of undisclosed troubles relating to IBM’s microelectronic business. In doing so, the plaintiffs argue, the company violated its fiduciary duty of prudence to plaintiffs under the Employee Retirement Income Security Act (ERISA).

The lawsuit says IBM, in 2013, tried to find buyers for its microelectronics business, which was then losing $700 million a year. The plaintiffs say IBM did not publicly disclose these losses and continued to value the business at approximately $2 billion.

Then, on October 20, 2014, IBM announced that it would pay GlobalFoundries Inc. $1.5 billion to take the business off its hands and that IBM would take a $4.7 billion pre-tax charge—which caused the technology giant’s stock to drop by more than $12 a share.

Referring to new pleading standards set forth in the Supreme Court’s decision in Fifth Third Bancorp v. Dudenhoeffer, the plaintiffs say, “Once defendants learned that IBM’s stock price was artificially inflated, defendants should have either disclosed the truth about microelectronics’ value or issued new investment guidelines that would temporarily freeze further investments in IBM stock.”

In its initial ruling on these arguments, the district court determined that the plaintiffs did not plausibly plead a violation of ERISA’s duty of prudence, because a prudent fiduciary could have concluded that earlier corrective disclosure would have done more harm than good. This ruling mirrors many stock drop decisions handed down after the Supreme Court’s consequential decision in Fifth Third Bancorp v. Dudenhoeffer.

Benefits June 5, 2019

Employer Interest in Student Loan Repayment Programs Picking Up

It’s important to first gauge employees’ interest in such programs, and to assess the costs, a Willis Towers Watson expert says.

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While only 10% of employers offer student loan refinancing programs, 5% are considering adding one this year, and another 20% say they might make the leap in 2020 or 2021, Willis Towers Watson learned in a recent survey.

Eight percent currently offer student loan consolidation, 5% may add it this year, and 21% sometime in the next two years. However, far less common are employer contributions toward student loan debt, handled by a mere 3% of employers. Four percent may make these contributions this year, and 24% are considering making them by 2021.

While tuition reimbursement programs, which are federally regulated, are far more common—offered by 80% of employers—Willis Towers Watson is starting to see “a significant increase in the number of employers considering student loan repayment programs when they think about the overall wellness of their worker population,” Lydia Jilek, senior director of voluntary benefits at the consultancy, tells PLANSPONSOR.

And, while student loan debt, estimated to now top $1.5 trillion in the U.S., is “pervasive within the U.S. population, among all generations,” Jilek says, a company should assess whether a student loan repayment program would be right for its employee base before implementing it.

That said, Jilek reveals that Millennials are the most vocal about asking for such programs, but, in fact, workers in their 30s and 40s carry the highest student loan debt balances. Further, many people in their 60s have taken out student loans on behalf of their children and/or grandchildren, and this group has the highest delinquency rate for these loans, she says.

According to Jilek, because some employers are hesitant to take on the added expense of student loan repayment programs, some opt to only offer one to a pilot group of their worker population, such as graduates of certain years. Others start with a “debt consolidation dashboard that they then use as a proxy to see the take-up rate,” she says. “That might indicate, for example, that the employer would be faced with a take-up rate of student loan repayment programs of 20% of its worker population.”

Jilek reports hearing that the IRS may expand the Abbott ruling, which permitted that company to give 401(k) matches for workers paying down their student loan debt. She says the IRS may make a decision by the end of the year. “My perception is that we are on a faster track because of the growing interest in offering these programs to employees across the board,” she says. However, it is “unclear whether the IRS will grant additional flexibility.”

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