Wednesday, June 25, 2014

Score one for our side: Supremes get it right in Fifth Third Bancorp

It’s not very often we get a favorable decision from the Supreme Court these days, particularly a unanimous one, but that happened today in Fifth Third Bancorp v. Dudenhoffer. This ERISA pension case involved ESOPs – Employee Stock Ownership Programs – and something called a “presumption of prudence” a lot of courts were invoking. Not unlike the absurd deferential level of analysis applied in the majority of ERISA benefits cases, the presumption was a big thumb on the scale in favor of pension plan administrators who bought and held stock in their own company while it went down in flames, gutting the retirement security of the company’s pensioners.

In a nutshell (if it isn’t already too late for that) ERISA imposes a duty of prudence on all ERISA administrators, which essentially requires that they behave like a reasonably prudent person would under the circumstances. The “presumption of prudence” posited that, in buying and holding their own company’s stock for their ESOP plans, administrators were presumed to act prudently, and you had to move heaven and earth to overcome the presumption. The Supremes today said that the ERISA statute requires prudence, and just because an ESOP is involved doesn’t mean we change the rules. The ruling, however, promises to have effects on all sorts of ERISA claims and ERISA fiduciaries, as suggested by this:
Consider the statute’s requirement that fiduciaries act “in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this subchapter.” [Citation omitted]. This provision makes clear that the duty of prudence trumps the instructions of a plan document such as an instruction to invest exclusively in employer stock even if financial goals demand the contrary. See also §1110(a) (With irrelevant exceptions, “any provision in an agreement or instrument which purports to relieve a fiduciary from responsibility . . . for any . . . duty under this part shall be void as against public policy”). This rule would make little sense if, as petitioners argue, the duty of prudence is defined by the aims of the particular plan as set out in the plan documents, since in that case the duty of prudence could never conflict with a plan document.
And this:
[Fifth Third’s] argument fails, however, in light of this Court’s holding that, by contrast to the rule at common law, “trust documents cannot excuse trustees from their duties under ERISA.” Central States, Southeast & Southwest Areas Pension Fund, 472 U. S., at 568; see also 29 U. S. C. §§1104(a)(1)(D), 1110(a).
Now, in English: the ERISA statute applies to all ERISA fiduciaries, and they are required to comply with it, and they can’t get around that with some phoney-baloney provision in a plan document (which they themselves usually draft in the first place) providing otherwise. It’s a rather sad commentary that a Supreme Court decision requiring these people to, you know, obey the law seems so earthshaking, but there you go.

We’ll see how this one plays out.

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