Citigroup Cleared in ERISA Fiduciary Duty Breach Case discusses how a court found that Citigroup did not breach its ERISA fiduciary duties in In re Citigroup ERISA Litigation, No. 07 Civ. 9790, 2009 WL 2762708 (S.D.N.Y. Aug. 31, 2009):

The U.S. District Court for the Southern District of New York recently determined that Citigroup did not breach its fiduciary duties under the Employee Retirement Income Security Act (ERISA) by offering its stock as a retirement plan investment option while its stock was incurring major losses. In re Citigroup ERISA Litigation, No. 07 Civ. 9790, 2009 WL 2762708 (S.D.N.Y. Aug. 31, 2009). In this case, Citigroup employees who purchased Citigroup stock as part of their 401(k) retirement plans filed suit, claiming that the plans' fiduciaries breached their duties by purchasing the stock while it was losing value. The court rejected the plaintiffs' claim, finding that the retirement plans "unequivocally" required that Citigroup stock be offered as an investment option. Thus, the defendants were actually not acting as fiduciaries regarding the investment in Citigroup stock because they had no discretion to remove the stock as an option under the plan. Additionally, the court noted that the plan's fiduciaries were not at fault, even though there were losses, because they "were adhering to the mandatory terms of a plan that was designed not to guarantee income but to encourage employee stock ownership."

Plan Language and Design Make All the Difference in In re Citigroup ERISA Litigation illustrates how the case provides a roadmap for ERISA fiduciaries to protect themselves from breach of fiduciary duty claims, emphasizing the following takeaways:

• Plan Language Is Key
  
• ESOP Designation Is Critical (Plan Language Required Investment in Company Stock)
  
• Role Delineation Is Vital (Court: ERISA Does Not Require Plan Fiduciaries to Report on Financial Condition)

Employer Stock Litigation Update: United States Department of Labor Urges Second Circuit Court of Appeals to Reject "Moench" Presumption of Prudence in the Citigroup ERISA Litigation discusses how DOL has filed Gray Amicus Brief, in support of appellant requesting reversal. It discusses the history of stock drop litigation:

Companies that sponsor ESOPs, 401(k) and other forms of eligible individual account plans ("EIAPs") often are subjected to class action lawsuits under ERISA when the company stock held by the plan drops in value. Since the 2001 collapse of Enron Corporation, more than 200 such "stock drop" lawsuits have been filed under ERISA on behalf of alleged classes of plan participants. Historically, many defendants decided to settle these lawsuits – often for tens of millions of dollars – rather than run the risk of a trial.

In recent years, however, the federal courts have shown an increased willingness to dismiss ERISA stock drop lawsuits at an early pre-trial stage. One of the key bases for dismissal is the so-called "Moench" presumption of prudence. That presumption (named after a 1995 decision issued by the Third Circuit Court of Appeals) treats a fiduciary's decision to continue offering the company stock investment as being consistent with ERISA, unless the plaintiff can show that the fiduciary knew at a pertinent time of an imminent corporate collapse or other dire situation. Where pleading and proof of that kind of knowledge is absent from the plaintiffs' complaint – which typically is the case for non-bankrupt plan sponsors that remain economically viable – the lawsuit may be thrown out well before trial.

The article also notes that it would be unfortunate if the Second Circuit discarded the Moench presumption and provides some observations on the DOL's arguments.