ERISA-Second Circuit Finds That The Employer And Its Directors Did Not Violate ERISA By Contributing Employer Stock (Instead Of Cash) To Two Retirement Plans, Despite A Price Decrease Of The Stock

In Coulter v. Morgan Stanley & Co. Inc. (2nd Cir. 2014), the plaintiffs had alleged violations of ERISA’s fiduciary requirements, in connection with the drop of the price of employer stock held by two retirement plans (a 401(k) plan and an ESOP, together the “Plans”) in which they participate. The defendants were the employer, Morgan Stanley, and certain of its directors. The district court, in finding that the Moench presumption of prudence applies to the defendants’ conduct, and that the plaintiffs failed to rebut this presumption, granted defendants’ motions to dismiss. The plaintiffs appealed. The Second Circuit Court of Appeals (the “Court”) did not rule on this finding, but concluded that the defendants’ conduct did not trigger fiduciary liability under ERISA and therefore affirmed the district court’s dismissal of the case on that ground.

In this case, in 2007 and 2008, the employer, Morgan Stanley, had made certain contributions to the Plans in the form of employer stock instead of cash. After the price of the employer stock fell during a broad economic downturn, the plaintiffs brought this suit, alleging breach of fiduciary duty under ERISA. In reviewing the case, the Court found that the conduct complained of-contributing employer stock rather than cash-did not occur in the performance of a fiduciary function. Such a function requires the management or administration of the plan as opposed to a “settlor function”, i.e., a business decision. Therefore, the conduct in question cannot trigger fiduciary liability under ERISA.

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