Two Recent Employer Securities Court Cases
July 30, 2007

The Courts Address Rights Relating to Employer Stock discusses two court cases that impact plans that hold employer securities:

• Goodin v. Innovative Technical Solutions, Inc., 2007 U.S. Dist. LEXIS 31320 (D.C. Haw. 2007)

This case “ruled that an employer violated the anticutback rules by eliminating 401(k) participants’ rights to receive a put option with respect to inkind distributions of privately held stock…. Accordingly, the court found that the put option right was an optional form of benefit because it is a factor that affects the value of the benefit form, and that eliminating the put option denied the participants a cash market for their stock distribution.”

• Ward v. Avaya, Inc., 2007 U.S. Dist. LEXIS 27568 (D.C.N.J 2007)

This case “reviewed a plan fiduciary’s decision to (i) continue to offer employer stock as an investment option under the plan and (ii) continue to allow plan assets to remain invested in employer stock in the face of falling stock prices. Based on the fact that the plans in question were required, by the express terms of the plan document, to offer the employer common stock as an investment option, the court reviewed the complaint using an abuse of discretion standard of review and held that a decline in stock value, without more, is not sufficient to prove an abuse of discretion….the court applied the deferential standard afforded a fiduciary of an ESOP as established in Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995). Under this standard, an ESOP fiduciary who invests plan assets in employer stock is entitled to a presumption that it acted consistently with ERISA by virtue of that decision. This has become known as the “Moench Presumption,” More discussion on this case can be found here.

We have previously discussed stock drop litigation here. If you are looking for more information on the Moench Presumption and stock drops, here are some lengthy articles:

WHAT’S UP ON STOCK-DROPS? MOENCH REVISITED

REEXAMINING MOENCH -- WHEN MUST A FIDUCIARY SELL EMPLOYER STOCK?