AARP urged a federal appeals court to rule that the failure by pension plan managers (who also happened to be the employer’s officers) to remove false and deceptive statements concerning the company’s common stock from required disclosures about the plan’s investments may subject the plan administrators to legal liability if the plaintiffs can prove that deceptive statements caused plan investors to lose money by purchasing or holding the stock.

Background

In Dudenhoeffer v. Fifth Third Bancorp employees who as a component of their self-directed employer-sponsored defined contribution plans purchased and held their employer’s stock and consequently lost money from devaluation of the 401(k) savings plan the company maintained for its employees filed suit against the plan administrators alleging ERISA fiduciary violations. The lawsuit claims that plan managers incorporated into the plan’s Summary Plan Description (SPD) by reference allegedly false and misleading statements that had been made in the company’s required filings with the Securities and Exchange Commission. The Employee Retirement Income Security Act (also known as ERISA) is the main federal law governing employee benefits such as pension plans.

The trial court held that incorporating the false statements into the plan documents by reference did not amount to a fiduciary violation because it was done as a plan sponsor act rather than a fiduciary, and that the allegations of the complaint did not sufficiently state a claim against the plan managers because their actions as ERISA plan fiduciaries enjoyed a presumption of prudence, which required plaintiffs to make a heightened claim at the time of initiating the suit. On account of that demanding pleading requirement, the trial court ruled that plaintiffs’ suit could not proceed. The employees appealed.

The Sixth Circuit Court of Appeals held that incorporation of SEC filings into plan documents is a fiduciary act. Furthermore, the appellate court ruled that the Complaint plausibly alleged defendants breached their fiduciary duties by intentionally incorporating Fifth Third’s SEC filings into the Plan’s SPD and thereby conveying misleading information to Plan participants. Having met the required pleading standard for alleging a breach of ERISA fiduciary duties, the court ruled that plaintiffs were entitled to proceed with their lawsuit. The case was sent back to the trial court for further proceedings.

What’s at Stake

The financial security and retirement savings issues involved in this case are of tremendous importance to all workers planning for retirement. Breaches of fiduciary duty resulting in poor 401(k) plan management have a significant impact on employees’ abilities to adequately plan for and save for retirement.

Case Status

Dudenhoeffer v. Fifth Third Bancorp was decided by the U.S. Court of Appeals for the 6th Circuit.