In a decision that will make it more difficult for ERISA plan fiduciaries to obtain dismissal of breach of fiduciary duty claims on a motion to dismiss, the Sixth Circuit ruled that plan participants do not need to overcome at the pleadings stage the presumption of prudence that applies to a fiduciary’s decision to remain invested in employer securities. In Pfeil v. State Street Bank and Trust Co., class action plaintiffs alleged that State Street Bank and Trust, the fiduciary for two General Motors (GM) retirement plans, breached its fiduciary duties by continuing to allow plan participants to invest in GM common stock, even though public information indicated that GM was headed for bankruptcy. The plans at issue were defined contribution plans for salaried and hourly employees, each of which maintained individual accounts for each participant. The plans offered several investment options, including the General Motors Stock Fund. The plan documents provided that the company stock fund “shall be invested exclusively” in GM stock, but also provided that the stock restriction did not apply (a) if there were serious questions regarding GM’s short-term viability as a going-concern without resort to bankruptcy proceedings or (b) if there was no possibility in the short-term of recouping substantial proceeds from the sale of stock in bankruptcy proceedings. If either of the conditions were met, then the plan documents directed State Street to divest the plan’s holdings in the GM Stock Fund.
On July 15, 2008 GM Chief Executive Rick Wagoner announced that the company needed to implement a “significant” restructuring plan. On November 21, 2008, State Street informed participants that it was suspending further purchases of the GM Common Stock fund. On March 31, 2009, State Street began to sell off the plan’s holdings in company stock, a process that was completed on April 24, 2009. GM filed for bankruptcy on June 1, 2009.
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