July 29, 2011 Articles

The Moench Presumption in ERISA Stock-Drop Litigation

The Moench presumption the fiduciary duties imposed by ERISA, Congress's intent to encourage employee stock ownership, and principles of trust law.

By Michael A. Valerio and Ben V. Seessel

It has been a few years now since the various permutations of the global financial crisis began to emerge and affect the equity markets. The share prices of many publicly traded financial services companies—particularly those tied in one way or another to the subprime lending and mortgage-backed securities markets—have suffered, assuming the companies survived at all. Prior to and during the turmoil, most of these companies sponsored retirement savings plans that offered employee-participants the option of allocating at least some portion of their retirement plan contributions to company stock. Some of the companies encouraged such employee allocations by offering matching employer contributions. Not surprisingly, with the substantial declines in the market capitalization of a number of these financial services companies, numerous class-action lawsuits have been brought on behalf of the company stock-holding participants in these Employee Retirement Income Security Act (ERISA)-governed plans. The plaintiffs’ basic refrain in these suits is that the plan fiduciaries (who, according to the plaintiffs, had the discretion to curtail investment in company stock regardless of the terms of the plan) either knew or should have known, at some point in time, that company stock was an imprudent investment, and they should have acted to avoid or minimize market losses.

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