A Sixth Circuit suit alleging mismanagement of retirement-plan assets is headed to the Supreme Court. Respondents are employees of Fifth Third Bancorp who invested in employee stock ownership plans that lost millions of dollars between July 2007 and September 2009 when Fifth Third’s stock plunged. ERISA protects participants in employee benefit plans by, among other things, imposing duties of loyalty and prudence on plan fiduciaries. On behalf of themselves and a class of similarly-situated employees, the plan participants alleged that Fifth Third defendants violated ERISA-imposed fiduciary duties by unreasonably investing plan assets. Specifically, the plan participants contended that it was imprudent for plan managers to continue holding Fifth Third’s stock when they knew that the company was engaging in high-risk, subprime lending practices that jeopardized the stock’s value.
Addressing a circuit split, the Supreme Court will review what suffices to allege violations of fiduciary duties in this context. Petitioners assert that allegations at the pleading stage must be sufficient to rebut a presumption that it is prudent for plan managers to invest plan assets in the employer’s stock. After the suit was initially kicked out for failure to state a claim, the Sixth Circuit held that such a presumption does not apply at the pleading stage, reasoning that it creates an evidentiary issue, not a pleading requirement. Taking the position that such a presumption does not apply, the Solicitor General encouraged the Court to take the case to remedy the circuit split over whether the presumption exists and what showing is required to overcome it. The Court’s decision is poised to have a significant impact on the likelihood of success in employer stock cases.