In In re Computer Sciences Corp.ERISA Litigation, Nos. CV 08-02398 and CV 08-02409, the Court granted summary judgment in favor of Computer Sciences Corp. and other defendants against a claim, among others, that they were imprudent under ERISA in having the company 401(k) plan continue to invest in employer stock.
In this case, Computer Sciences Corporation (“CSC”) had made the CSC Matched Asset Plan, a 401(k) defined contribution plan (the “Plan”), available to its employees. Under the Plan, the employees could invest a percentage of their monthly compensation in various investment options, including the CSC Stock Fund. The Plan requires that CSC stock be offered as an investment option. CSC had apparently been “backdating” stock options granted to management. On June 29, 2006, CSC announced that the SEC had made an “informal request for information related to CSC’s stock option grants and stock option practices,” and that CSC was initiating a $2 billion buy back of its stock. The following day, the price of CSC stock declined 12%, resulting in corresponding declines in the Plan accounts of participants who had invested their accounts in the CSC Stock Fund. Plan participants, the plaintiffs here, filed a suit against CSC and others, claiming that the defendants had breached their fiduciary duty under ERISA by, among other things, imprudently continuing to invest Plan assets in CSC stock, since a lack of internal control over the stock option program led to an SEC investigation and the 12% stock price decline.
The Court rejected the plaintiffs’ claims and granted summary judgment against the plaintiffs. In As to the claim of imprudence, the Court said that the plaintiffs did not present any evidence or argument that the defendants had failed to be prudent within the meaning of ERISA. A decline in stock price is not sufficient to make continued investment in employer stock imprudent. Holding fiduciaries liable for continuing to invest in employer stock would place them in an untenable position, as they could also be liable if they ceased investment in the declining stock and it later rebounded, or if selling off the investment itself caused a price decline. Further, the plaintiffs failed to prove that the defendants’ actions caused any losses to the Plan participants, primarily because they failed to show that an alternative investment for the Plan would have produced better investment results, or that the plaintiffs would have paid a lower price for the investment in the CSC Stock Fund they had made for their Plan accounts if they had been aware of information that the defendants were concealing.