Compliance June 23, 2020

IBM Stock Drop Lawsuit Remanded Back to District Court

The 2nd U.S. Circuit Court of Appeals has re-established its previous ruling in favor of the plaintiffs.

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The 2nd U.S. Circuit Court of Appeals has reinstated its initial decision in an Employee Retirement Income Security Act (ERISA) lawsuit against IBM, siding with the plaintiffs.

The plaintiffs in Retirement Plans Committee of IBM v. Larry W. Jander had alleged the tech giant’s management of its employee stock ownership plan (ESOP) was imprudent, citing a drop in IBM common stock by more than $12 per share. The lawsuit alleged that defendants invested retirement plan assets in IBM common stock despite their knowledge of undisclosed troubles relating to IBM’s microelectronic business. In doing so, the plaintiffs argued the company violated its fiduciary duty of prudence to plaintiffs under ERISA.

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IBM defendants requested an appeal to the Supreme Court, for which the high court then remanded the case back to the 2nd Circuit, citing new arguments. “The question presented in this case concerned what it takes to plausibly allege an alternative action that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it,” the Supreme Court decision explained. “It asked whether Dudenhoeffer’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 Supreme Court noted the petitioners argued that ERISA imposes no duty on an employee stock ownership plan fiduciary to act on inside information. For its part, the government argued that an ERISA-based duty to disclose inside information that is not otherwise required to be disclosed by the securities laws would conflict at least with objectives of the complex insider trading and corporate disclosure requirements imposed by the federal securities laws.

“The Second Circuit did not address these arguments, and, for that reason, neither shall we,” the Supreme Court ruled. “We are a court of review, not of first view. For this reason, we vacate the judgment below and remand the case, leaving it to the Second Circuit whether to determine their merits, taking such action as it deems appropriate.”

The 2nd Circuit invited parties of both sides, along with the Chamber of Commerce, the Securities Industry and Financial Markets Association, the ERISA Industry Committee and the American Benefits Council, to submit new briefings and information not previously raised before the court. After its review, the court re-established its previous ruling in favor of the plaintiffs.

“Having reviewed the submission from the parties and amici, we now reinstate the judgement entered pursuant to our initial opinion,” the court said in its opinion. “The arguments raised in the supplemental briefs either were previously considered by this court or were not properly raised. To the extent that the arguments were previously considered, we will not revisit them. To the extent that they were not properly raised, they have been forfeited, and we decline to entertain them.”

The ruling is unlike many defendant-dominated stock drop wins handed down after the U.S. Supreme Court’s ruling in Fifth-Third v. Dudenhoeffer. Plaintiffs will now have the chance to reargue their case in front of the U.S. District Court for the Southern District of New York, which had previously sided against participants before the appellate court rejected the finding.

The full text of the court’s decision can be found here.
Benefits June 23, 2020

Fostering Compassion During a Crisis

This year's events offer employers a chance to connect with employees and change workforce and retirement plan investing efforts.

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Shundrawn Thomas, president of Northern Trust Asset Management, says he believes plan sponsors are long overdue for important conversations.

The convergence of 2020 events, from the COVID-19 pandemic to the new wave of the Black Lives Matter movement, has prompted organizations to adjust. Companies have shifted to remote work, implemented telehealth options, made sizable donations to small businesses and anti-discrimination organizations and disclosed diversity numbers within their executive leadership. But, Thomas says, it’s time to expand and evolve the nature of the dialogue within the workforce.

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In his open letter to civic and business leaders, “The Cure to COVID-19 Begins with Compassion,” Thomas explores how employers and executives can have empathetic conversations in the workplace, focusing on the effects of the pandemic and the inequities faced by those in Black and brown communities. “These things lay bare in open sight, but we don’t necessarily talk about them or engage in the workplace,” he tells PLANSPONSOR.

Plan sponsors’ largest power is their voice, he says, and they can influence the dialogue within their organizations by, for example, starting a conversation. Having a conversation allows employees to lean into the discourse and exchange ideas with one another. This creates a sort of transitive effect, Thomas says, allowing employees to create discussions or conversations in their communities. “What happens is people start engaging in those conversations in other places,” he notes. “That’s how you see it begin to impact other places.”

Along with encouraging conversations, employers should take actionable steps to bring change to the workforce. The pandemic has left workplaces struggling to resume daily protocols and production, put some regular businesses on hold and led to distractions. Employers can use this time to reform recruitment and retention strategies, a process that long existed without much formality for diversity and inclusion measures, Thomas says. “These processes have sort of gone on autopilot,” he explains. “We have to take the time to intentionally use this pause where we’ve all been disrupted, and actually make intentional and conscious changes for the better.”

The key is to invest in employees, he says. Add training and development strategies, which not only benefit employees but also raise overall capacity and capability levels within the company; provide internal or external coaching opportunities for senior and junior members; and dollar-match donations when employees are volunteering their time, he says. “That’s one way to invest in the employee, while the employee is investing in the community,” Thomas adds.

The influx of resources doesn’t stop at the company, either. “We have employees go to different development conferences, they are a part of trade groups, and we can support them in terms of taking additional, extended or professional educational courses,” he continues. “There’s a wide range of ways in how we can invest in our employees.”

As fiduciaries, employers and service providers influence their workforces and participants. For example, if a fiduciary is responsible for overseeing assets, they are accountable for the caring of assets, which ultimately account for the well-being of others. Employers should think critically about the funds they are invested in and the standards they hold their service providers to. “We absolutely have to ask the hard questions with how they perform, with respect to how they’re managing the assets,” Thomas says. “You can demand that you have excellent investment performance, but you can also demand the people who are serving you and your constituents are excellent contributors to the community in which we work and live.”

Most problems create an opportunity to grow and learn. The COVID-19 crisis and recent protests have revealed and exposed ingrained inequities among communities; employers with influence and power are in the position to enact changes. “A crisis reveals the true characters of people, a crisis reveals problems,” Thomas concludes. “The nature of the pandemic has exposed those, so the question becomes, now that this is unambiguous, do we choose to continue, or do we show compassion?”

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