“What does the plan document say?,” is a popular refrain heard from ERISA attorneys. That, it turns out, is the same question the Second Circuit would pose in deciding whether the Moench presumption applies to a plan sponsor’s decision to offer employer securities in an eligible individual account plan.
Pension plans generally may not acquire qualifying employer securities if acquiring those securities would result in more than 10 percent of the plan’s assets being invested in employer securities or employer real property. This restriction generally does not apply to eligible individual account plans (EIAPs). Recognizing the tension between ERISA’s competing values of protecting retirement assets and encouraging investment in employer stock, courts have developed the Moench presumption that an ERISA fiduciary of an EIAP who makes employer stock available as an investment option is entitled to a presumption that it acted consistently with its fiduciary duties of prudence and loyalty. A court applying the presumption reviews the decision to make employer stock available as an investment option for abuse of discretion. Under this deferential standard, the Second Circuit previously held that an ERISA fiduciary may be found to have abused its discretion only where it knew or should have known that the employer, and therefore its stock, was in a dire situation.
In Taveras v. UBS, AG, (2d Cir. Feb. 27, 2013), UBS was the sponsor of two EIAPs, the Savings and Investment Plan (SIP) and the Plus Plan. Each plan allowed participants to direct their own investments among the various funds available under the plan, which included a UBS Stock Fund. Between April 26, 2007, through October 16, 2008, the plaintiffs’ amended complaint alleged the UBS Stock Fund lost 74 percent of its value, though the plaintiffs’ opposition to the defendants’ motion to dismiss revised that figure down to 69 percent.
The Plus Plan’s stated purpose was to attract and retain qualified individuals by providing them with an opportunity to accumulate assets for their retirement and to acquire UBS stock. Toward this goal, the Plus Plan required that the UBS Stock Fund be one of the investment options available under the plan. On the other hand, the SIP contained no language mandating or even encouraging that SIP participants be permitted to invest in the UBS Stock Fund.
The court noted that judicial scrutiny of an ERISA fiduciary’s decision to offer employer stock as an investment option increases with the degree of discretion a plan allows that fiduciary to exercise in making that investment option available. Conversely, an ERISA fiduciary’s failure to divest from employer stock is less likely to constitute an abuse of discretion if the plan’s terms require investment in employer stock.
In view of this sliding scale, the court found that defendants were entitled to the benefit of the Moench presumption under the Plus Plan in that the plan’s fiduciaries were directed to offer the UBS Stock Fund as an investment option by the Plus Plan document. With respect to the SIP, however, the court held that the decision to offer the UBS Stock Fund was one made pursuant to the plan fiduciaries’ discretion and, thus, not entitled to a presumption of prudence. As a result, the fiduciaries’ decision to make the UBS Stock Fund available as an investment option under the SIP becomes subject to heightened judicial scrutiny.
Although the Taveras decision refines the contours of when the Moench presumption applies in the first instance, it does little to answer the question of when an employer’s situation – short of insolvency – becomes so dire that the presumption can be overcome.