In Taveras v. UBS AG, Docket No. 12-1662 (2nd Cir. 2013), the Court reviewed the applicability of the ERISA presumption of fiduciary prudence when investing in an employer stock fund. In this case, the defendants maintained two retirement plans: the Savings and Investment Plan (the “SIP”) and the UBSFS 401(k) Plus Plan (the “Plus Plan”). Both plans are “eligible individual account plans” or “EIAPs” for purposes of ERISA, and they both offer, for investment by plan participants, the UBS Stock Fund. This fund holds stock of UBS, and as such is an employer stock fund. This suit arises out of the huge decrease in the value of the stock held in the UBS Stock Fund, and the corresponding decrease in the value of participants’ accounts invested in that fund.
In analyzing the case, the Court noted that all ERISA fiduciaries are required to act in accordance with the duty of prudence, which requires those fiduciaries to make reasonable investment and managerial decisions on behalf of the ERISA plan they are overseeing. It said that the Second Circuit has adopted a “presumption of prudence” (the so-called “Moench Presumption”) that applies to fiduciaries of certain plans who invest the plan they are overseeing, or offer participants the option to invest their individual accounts, in the employer’s stock. The presumption applies to the types of EIAPs at issue here. The presumption dictates that, where applicable, a fiduciary’s decision to invest an employer’s retirement plan in the employer’s own stock, or to offer plan participants the option to so invest, is a presumptively prudent decision in compliance with ERISA, and thus the decision to invest in the employer’s stock is reviewed only for an abuse of discretion. However, judicial scrutiny should increase with the degree of discretion a plan gives its fiduciaries to invest in the employer stock.
The Court then noted that the Plus Plan states that “[t]he Trustee shall invest and reinvest all amounts in each Participant’s Accounts . . . from among the Investment Funds made available by the Investment Committee . . . one of which shall be the [UBS] Common Stock Fund.” The Investment Committee is allowed to “add[ ] or delete[ ]” any of the available investment funds, presumably including the UBS Stock Fund, “from time to time.” The Court interpreted this language to mean that the Trustee is required to invest in the UBS Stock Fund, and concluded that the presumption of prudence applies with respect to the Plus Plan.
The Court found that the plan document for the SIP neither requires nor strongly encourages investment in UBS stock or the UBS Stock Fund. Instead it simply names that fund and presents it as one permissible investment option. Thus, the Court concluded that the presumption of prudence does not apply with respect to the SIP.