What Should Employees Do in Response to Fifth Third Bancorp?

The Supreme Court’s decision in Fifth Third Bancorp, concerning the standards for prosecuting stock drop claims involving employer stock held in ERISA governed plans, certainly increased the attention paid to the question of the obligations of plan fiduciaries when it came to the risky holding of employer stock in a plan. But there is a flip side to that focus on the roles and obligations of corporate officers and plan fiduciaries with regard to the propriety of excessive holdings, in risky conditions, of employer stock. You see, I have often written, and I think many others have recognized it as well, that despite the protections granted to plan participants by the fiduciary obligations imposed on those running a plan and by the requirement that the plan be operated consistent with the plan documents, ERISA does not render the plan and its administrators In loco parentis, at least outside of pensions (and even then only to a certain extent), with regard to plan investments, nor does ERISA otherwise absolve participants of having to understand the plan and make sure their accounts hold suitable investments.

I was reminded of this over the weekend, when the Wall Street Journal ran this article (subscription required) about the importance of participants in plans that hold employer stock taking the time to reduce those holdings as a proportion of their investment mix. Sure, the new stock drop rules under Fifth Third make it somewhat more likely that a group of employees in a particular company who lose a large percentage of the value of their holding of employer stock under circumstances where that could have been avoided by better decision making by fiduciaries can sue for, and possibly recover for, losses in employer stock holdings. But the reality is that such recoveries will be few and far between, as the pleadings standards are still strict and only the largest plans with such losses are likely to draw the interest and ire of the class action bar. This means that, for all other plan participants who hold employer stock in their accounts, it is incumbent upon them to remember the doctrine of caveat emptor (two Latin phrases in one Monday morning after only one cup of coffee – pretty good, don’t you think?) and to reduce their exposure to a level commensurate with their tolerance for risk.