November 07, 2019

Kimberly Jones Quoted by Bloomberg Law on the Impact of High Court’s Upcoming Decision in ERISA Case

Bloomberg Law reports on an upcoming U.S. Supreme Court decision in a 401(k) case that could change the way companies structure their retirement plan committees. The publication turned to Employee Benefits and Executive Compensation partner Kimberly Jones for additional insight on the case, Retirement Plans Committee of IBM v. Jander.

In 2014, the Supreme Court said in Fifth Third Bancorp v. Dudenhoeffer that plan participants have to rule out that a fiduciary could have determined disclosing the information would have done more harm than good to the fund.

But the U.S. Court of Appeals for the Second Circuit later said this type of ERISA lawsuit can survive on allegations that the costs of undisclosed fraud increase over time and, therefore, the fiduciaries should have disclosed sooner that IBM’s microchip business was struggling. If the high court rules in favor of plan participants, it could make it easier for stock drop lawsuits to pass the first hurdle of litigation.

Jones told the publication that she has already heard clients rethinking who should serve on their retirement plan committees and whether they should include high level executives with insider information.

While Jones doesn’t think the court will come right out and say these insiders shouldn’t be on the committees, she said the court’s decision could change who serves on these boards.

Bloomberg Law reports that some members of the court’s conservative wing seemed baffled as to why Congress has allowed company executives to manage employee retirement plans that give workers ownership of shares.

Counsel for the Retirement Plans Committee of IBM said “the easiest thing for IBM to do is to say, ‘Let’s get rid of the ESOP.”

Congress specifically allowed executives and other insiders to serve as plan fiduciaries to encourage companies to offer ESOPs. Congress viewed these plans as a way to help workers save for retirement, attorneys say. If the court makes it easier for fiduciaries to be sued every time a company’s stock drops, companies may choose to stop offering employees retirement plans with stock options.

“I think that’s a possible repercussion,” Jones added. “I think it’s possible that companies could say it’s not worth offering these ESOPs if we’re going to be subject to litigation all the time.”

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