Morgan Stanley, Pfizer Benefit from Moench Presumption

In a case against Morgan Stanley, using the Moench presumption of prudence, U.S. District Judge Deborah A. Batts found the terms of the 401(k) plan and employee stock ownership plan gave fiduciaries little discretion in whether employer contributions were invested in company stock. Batts said the plans favored company stock investments and pointed out the default investment option for the company match was employer stock.She also noted that Morgan Stanley’s financial situation was not “dire” enough to overcome the presumption of prudence—as has been the standard in previous case law.  

In a case against Pfizer, U.S. District Judge Laura Taylor Swain applied the Moench presumption because the employee stock ownership plan’s (ESOP’s) “stated purposes” included investing employee assets in company stock. Swain found the plan did not give fiduciaries “unfettered discretion” whether to offer company stock as a plan investment. She also found no dire circumstances existed to overcome the presumption.  

The Morgan Stanley lawsuit was filed in 2007 and alleged that plan fiduciaries continued to offer company stock as an investment option even though they “knew or should have known about Morgan Stanley’s gross mismanagement and improper business practices.” The firm suffered a massive credit deterioration necessitating large write-downs of its collateralized debt obligations (see “Morgan Stanley Target of Stock Drop Lawsuit”).  

In the Pfizer case, plan participants alleged the Pfizer and Pharmacia retirement savings plans lost hundreds of millions of dollars when fiduciaries imprudently continued to allow employees to invest in company stock. They claimed the companies and their executives did not properly look into the potential effects on the stock share value of the controversy and eventual recall of the prescription drugs Celebrex and Bextra that were pulled from the market in 2005 after concerns were raised they posed cardiovascular risks (see “Pfizer, Pharmacia Stock Drop Case Moves Forward”).   

Batts opinion in the Morgan Stanley case is here.