Stock Issue in 401(k) Plans - Waiting on Supreme Court

HR Resource
November 27, 2013 — 2,602 views  
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Department of Labor had filed a petition in the early November to the Supreme Court to look into the matter of fiduciary forethought in managing company stock as one of the options for investment. The petition by the department looks forward to tackling the problems in the circuits of the judiciary which may make it easy for individuals to challenge their employers at such times when the company loses its stick value.

Looking at both the sides

It is being speculated that there are high chances of the high court accepting this case. Larry Magnesen, spokesperson for Fifth Third Bancorp based in Cincinnati, said that in case this happens, it can have a threatening impact on plan sponsors but on the other hand, it will also help in resolving discrepancies from rulings of lower court. He also said that the organization was glad to hear about the recommendation by the solicitor regarding this case.

Fear of litigation may scare companies

Scott Macey who is the CEO as well as president of the ERISA Industry Committee which is based in Washington, said that a large number of plans all over the nation have employer-share funds. In such a case it is quite obvious that the very idea of being under constant pressure of facing litigation can scare away many organizations.

The officials of Department of Labor said that they understand about the concern of the employers over increased litigation; but the companies will also have to understand that such lawsuits demand strong evidence and weak cases will lead to attracting court costs as well as risk sanctions.

In general, fair decisions have been taken in such cases. But things began to change after a ruling in Cincinnati by the Court of Appeals in September 2012. Plaintiffs in Dudenhoeffer vs. Fifth Third Bancorp et al alleged that 401(k) plan fiduciaries of the bank did not follow their duties as they allowed participants to invest in the stock of the company even when its value dropped to 74 percent. The downfall in the value was being considered to be a result of the mortgage lending practices of the bank.

Usually such actions of stock-drop usually lead to settlements so that expensive litigation can be avoided. In case the proposed petition gets accepted by Supreme Court, the case will have a very big impact on many organizations that may be stuck in such legal fights.  

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