In many stock drop cases that are reported in this newsletter, courts apply a presumption of prudence that protects fiduciaries from liability for fiduciary breaches when the plan permits but neither requires nor encourages the fiduciaries to offer employer stock as an investment option. The U.S. Court of Appeals for the Ninth Circuit, however, takes a more restrictive position that the presumption of prudence is applied when the plan terms require or encourage the fiduciary to invest in employer stock. The Ninth Circuit’s position is evidenced in its recent decision in Harris v. Amgen, Inc. (9th Cir. 2013), in which participants in two company retirement plans that each included an employer stock fund sued the plan fiduciaries for breaches of fiduciary duties, including the duties of prudence and care, by continuing to offer the stock fund as an investment option after a drop in employer stock value. A federal district court dismissed the claims. On appeal, the Ninth Circuit reversed the district court’s decision and remanded the case for further proceedings. In reaching its decision, the Ninth Circuit ruled that because the plan terms did not require or encourage the defendant fiduciaries to invest in employer stock, a presumption of prudence did not apply – plan language merely permitting investments in employer stock is not sufficient to protect the presumption. It is worth noting that the U.S. Court of Appeals for the Second Circuit takes a similarly restrictive view of the presumption of prudence (see discussion of Taveras v. UBS in Employee Benefits Developments April 2013). In the absence of the presumption, the Ninth Circuit held that the plaintiffs sufficiently alleged violation of defendants’ fiduciary duties regarding two employer-sponsored retirement plans. Finally the court held that the plaintiffs sufficiently alleged that the defendants violated their duties of loyalty and care by failing to provide material information to plan participants. The posture of the courts in the Second and Ninth Circuits strongly suggests that including specific plan language mandating the availability of, or otherwise favoring, investments in an employer stock fund as a participant investment fund option may be important for preserving the presumption of prudence.