ERISA-District Court Rules That ERISA Section 404(c) Protects Employer And Plan Fiduciaries Against Liability For Continuing An Employer Stock Fund

In Lingis v. Motorola Inc., No. 03 C 5044 (N.D. Ill. 2009), the court ruled that Section 404(c) of ERISA protects an employer and the fiduciaries of a 401(k) plan against liability for continuing to maintain a fund offering investment in employer stock.

The 401(k) plan-an individual account plan-allowed it’s participants to direct the investment of their plan accounts among nine different investment options, including an employer stock fund. The problem started with a default on a loan which the employer, Motorola, had made to a foreign entity, causing the price of Motorola’s stock to plummet. This price decrease had an adverse effect on the value of the 401(k) plan’s employer stock fund and the balances of the participants’ accounts that were invested in that fund. The participants sued the employers and the 401(k) plan’s fiduciaries, on the grounds that, among other things, they had breached their fiduciary duty under ERISA by continuing to offer the employer stock fund for investment under the 401(k) plan even though they knew about the problems with the loan.

In ruling against the participants, the court accepted the defendants’ argument that Section 404(c) provides a safe harbor for plans-such as the one at issue-in which participants exercise control over their own investments, and, in the instant case, this safe harbor applies to relieve the defendants from any liability they may otherwise have under ERISA.

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