In June, I blogged on a Supreme Court decision with liability implications for officers and directors at every publicly traded company that offer a Company Stock Fund investment option in its 401(k) Plan or maintains an ESOP (“Another Liability Risk for Officers and Directors”). Readers of this blog may not be focused on 401(k) Plans or ESOPs, but they do know that traditional securities fraud class actions against officers and directors almost always follow a significant drop in a company’s stock price. A little over a decade ago, since most public companies had by that point included a Company Stock Fund investment option in their 401(k) Plans or ESOPs, the plaintiffs’ class action bar began suing ERISA plan fiduciaries, which nearly always included officers and directors, for breach of their fiduciary duties of prudence and loyalty when the company’s stock price declined.
Before Dudenhoeffer, the Court of Appeals for every federal circuit save one adopted the so-called “Moench presumption” (a presumption of prudence) in favor of the fiduciaries and nearly all of these cases foundered. Dudenhoeffer expressly rejects the Moench presumption, opening the way for a new wave of class action lawsuits and for some plaintiffs to restart their earlier ones.
There are specific steps companies with a Company Stock Fund can take to change their plan documents and procedures in light of Dudenhoeffer. And some of the strategies we had devised before the Dudenhoeffer decision are still valid today (although many companies have not even taken these steps). On August 14, 2014, we will be hosting a webcast on action items that public companies can take to reduce the risk of these lawsuits – or at least the risk of including officers and directors. For more details about this eLunch, click here. To register, click here.