The United States Department of Labor ("DOL") recently urged the U.S. Court of Appeals for the Ninth Circuit to grant rehearing and overturn a three-judge panel's recent ruling embracing what is known as the “presumption of prudence” that often places a heavy burden on plaintiffs in employer stock-drop lawsuits, by filing an amicus brief in Quan v. Computer Sciences Corp., 9th Cir., No. 09-56190. The brief, which is posted to the DOL's website , argues that the three-judge panel's adoption of the “presumption of prudence” conflicts with the plain statutory language of ERISA. According to DOL, by adopting the presumption, the three-judge panel replaced ERISA's objective “prudence” standard of care with a “more lenient, judicially-created standard,” the brief said. DOL also argued in its brief that the full panel of Ninth Circuit judges should rehear the case because the three-judge panel's decision conflicts with U.S. Supreme Court and Ninth Circuit decisions concerning the court's authority to create federal common law that contravenes ERISA's plan language and purposes. DOL also argued that rehearing is warranted because the three-judge panel's decision improperly created a “safe harbor” from fiduciary obligations for employer stock investment, which could put billions of dollars in pension plan assets “at undue risk.”
We have written and reported about several recent "stock drop" cases over the past several months. Many courts deciding these cases have adopted the "Moench" presumption of prudence, which provides plan fiduciaries with significant safeguards in their determination as to whether and when to rid a pension plan portfolio of the option of offering employer stock. DOL obviously sees such decisions as a threat to the potential well-being plan participants and beneficiaries and, through this amicus brief, seeks to hold fiduciaries to standards that require more diligence. It will be interesting to see whether DOL's brief impacts the Ninth Circuit's decision and whether other courts will follow suit.
