Fifth Third Bancorp v. Dudenhoeffer: Where Does It Leave Fiduciaries of Public Company Employee Stock Ownership Plans?
The Supreme Court recently concluded that the ERISA fiduciaries of an employee stock ownership plan (an “ESOP”) are not entitled to a presumption that they acted prudently in connection with the ESOP’s investment in employer stock. While the Court recognized several alternative defenses to ERISA “stock drop” cases, the Court’s rejection of the presumption of prudence – which had previously been adopted by a number of U.S. courts of appeals and was routinely relied upon by ESOP fiduciaries – could encourage the filing of lawsuits against public companies and their ESOP fiduciaries in the event of a decline in the company’s stock price. Accordingly, public companies should carefully consider this potential litigation risk along with other risks and benefits when determining whether to offer an ERISA employee benefit pension plan that invests in company stock.