The Fifth Circuit in Schweitzer v. Inv. Comm. of Phillips 66 Sav. Plan dismissed claims against 401(k) plan fiduciaries related to allowing plan participants to hold a single stock that was not an employer security as a plan investment alternative. No. 18-cv-20379, 2020 WL 2611542 (5th Cir.
As discussed below, the Court's decision offers meaningful guidance to fiduciaries of participant-directed plans and, more specifically, to those evaluating what to do with a company stock fund after a spinoff or divestiture.
Background
Many of the transferred employees had invested in the
Participants in the Phillips 66 Plan filed a putative class action complaint alleging two ERISA breach of fiduciary duty claims: breach of the duty of diversification by offering the
The district court dismissed the complaint for failure to state a claim. The district court first found that the diversification claim failed because participants could no longer invest in the
The Fifth Circuit's Opinion
The Fifth Circuit affirmed the district court's dismissal of all claims. To begin with, the Court concluded that the diversification claim failed because the complaint lacked any allegation that the fiduciaries failed to offer a diverse menu of investment options or otherwise warn the participants of the risk of assembling a non-diversified portfolio. In so ruling, the Court rejected the participants' reliance on authority addressing diversification requirements for defined benefit plans. The court explained that, for a defined contribution plan, a fiduciary's responsibility is to create a diverse menu of available investment options. Individual options on the menu do not necessarily have to be diverse, and allocation of assets among the available options is the responsibility of each participant.
The Court next turned to the participants' claim that the fiduciaries breached the duty of prudence by allowing participants to hold their investments in the
Nevertheless, the Court noted that, under some circumstances, it could be imprudent to keep a single-stock fund on the investment menu. The Court determined that Dudenhoeffer did not control here because this was not a claim about whether the plan fiduciaries should have taken action based on publicly available information and did not involve employer securities. The Court concluded that the fiduciaries were not imprudent because they had closed the
Proskauer's Perspective
The Fifth Circuit's ruling approves a common approach for handling company stock funds after a spinoff or similar divestiture. Nevertheless, plan fiduciaries should continue to monitor all investment options, and to keep investment disclosures up to date, to ensure that participants have the information necessary to make sound investment decisions.
Fifth Circuit Upholds Dismissal Of Diversification And Prudence Claims Targeting A Single Stock Fund In A 401(k) Plan
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr
Eleven
(
10036-8299
Tel: 2129693000
Fax: 2129692900
E-mail: gpolk@proskauer.com
URL: www.proskauer.com
© Mondaq Ltd, 2020 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com, source