The plaintiffs in the case alleged that fiduciaries of IBM’s retirement plan breached their duty of prudence—a type of fiduciary duty—under ERISA by investing in IBM’s stock, even though they knew that the company’s microelectronics division was overvalued, which artificially inflated the company’s stock price. The plaintiffs argued that the fiduciaries eventually had to disclose this information, but by delaying in doing so, they cost the plan more over time.
The 2nd U.S. Circuit Court of Appeals let the plaintiffs proceed with their case, deciding that they had sufficiently alleged that “no prudent fiduciary in the plan defendants’ position could have concluded that earlier disclosure would do more harm than good” to the plan, SHRM reported.
“It took everyone by surprise” when the 2nd Circuit let the claim proceed, said Jones. She added that in previous litigation, the Supreme Court “did not want, every time there is a drop in stock price, for fiduciaries to be embroiled in litigation as to whether their decisions were appropriate.”