ERIC Argues Stock Drop Dismissal Should Stand on Appeal

ERIC took that position in a friend of the court brief filed with the 11^th U.S. Circuit Court of AppealsinSewright v. ING Groep, NV, et al., which is an appeal of the lower court decision .  Plaintiffs had argued ING should have no longer allowed stock purchases from within its retirement savings plan since the share price had dropped significantly as a result of the economic downturn.

However, in its brief, ERIC contended that the company was forced to comply with a mandate in its plan document requiring the company shares to be available as an investment option. ERIC argued, therefore, that the decision to continue offering shares was not discretionary and not a fiduciary action subject to sanction under the Employee Retirement Income Security Act (ERISA).

Litigation of this kind, said ERIC, “places the fiduciaries on the horns of a dilemma.”  They can be sued if they follow the terms of the plan and allow the plan to continue investing in employer stock; they can be sued if they override the terms of the plan by forbidding the purchase of additional employer stock or liquidating the plan’s current holdings of employer stock, and they could be sued if they provide information about the company to plan participants that they do not provide to other shareholders, ERIC argued.

In addressing a brief filed by the Department of Labor (DoL), ERIC argued that the fact a stock has been “overpriced” can only be known in retrospect after a change in circumstance causes the price to drop.  “The contention that fiduciaries should allow plan investment in employer stock only when that stock is not going to fall in value would not require them to be merely prudent; it would require them to be clairvoyant,” the brief said. ERIC further argued that there is no justification for creating common-law rules under ERISA to regulate disclosures about company securities since such common-law rules would undermine important objectives of both ERISA and the securities laws. 

ERIC President Mark Ugoretz said “the district court ruling must be allowed to stand, otherwise you will continue to see a deluge of litigation from participants merely second-guessing plan fiduciary decisions, further jeopardizing the employer-sponsored retirement system.”  The ERIC brief is located at http://www.eric.org/forms/uploadFiles/2735000000038.filename.Amicus_Brief_of_ERISA_Industry_Committee_2-14-11.pdf.

In their own friend of the court brief, DoL lawyers filed in Sewright, the DoL argued that the trial judge was wrong in deciding the company was mandated to retain the company stock fund as an option in the ING Savings Plan and that the defendants were not fiduciaries with respect to the company stock (see DoL Calls for Stock Drop Ruling Reversal).