Thinking ESOPs: The Truth About ‘Conflicts’ Under ERISA

At a Glance

• This important point requires repeating: ERISA absolutely does not prohibit fiduciaries who have multiple loyalties.
• To be sure, ERISA does require that a person with multiple loyalties must only “wear the fiduciary hat when making fiduciary decisions.”
• Anderson serves as an important reminder that there are fundamental ERISA principles that must be adequately explained to judges to disabuse them of incorrect beliefs advocated by plaintiffs’ firms.

On May 22, 2025, the Ninth Circuit Court of Appeals affirmed dismissal of an Employee Retirement Income Security Act of 1974 (ERISA) lawsuit relating to a 401(k) plan. See Anderson, et al. v. Intel Corp. Investment Policy Committee, et al., No. 22-16268 (9th Cir. May 22, 2025). Most of the court’s opinion addressed 401(k)-specific claims relating to investment options offered to participants, but the tail end of the decision addressed an extremely important ERISA issue that almost always arises in employee stock ownership plan (ESOP) litigation.

That issue deals with ERISA’s fiduciary duty of loyalty. The plaintiffs in Anderson alleged that certain fiduciary defendants breached their duty of loyalty to the plan’s participants when they made certain investment decisions that ultimately benefitted Intel. That claim failed in the first instance because plaintiffs did not tie the fiduciaries’ decisions to underlying benefits to Intel, but it also failed because ERISA does not prohibit fiduciaries who have multiple loyalties.

This important point requires repeating: ERISA absolutely does not prohibit fiduciaries who have multiple loyalties. As the Anderson court explained, ERISA allows fiduciaries to “wear different hats,” and fiduciaries can even have financial interests that are directly adverse to participants. ERISA fiduciaries also can act adverse to participants when making non-ERISA fiduciary decisions, like settlor decisions relating to plan design, amendment, or termination, or any other corporate decision that is not an ERISA fiduciary decision, or any decision in a person’s capacity as a shareholder selling stock to an ERISA plan.

To be sure, ERISA does require that a person with multiple loyalties must only “wear the fiduciary hat when making fiduciary decisions.” This means that ERISA prohibits actual acts of fiduciary disloyalty when the ERISA fiduciary is actually making an ERISA fiduciary decision. That is not the same as a mere potential for conflict presented by someone with multiple loyalties.

In the ESOP space, it is common for plaintiffs’ firms, and even the Department of Labor, to argue that fiduciaries suffered from conflicts of interests that disqualified them from serving as fiduciaries or tainted every decision that the fiduciaries made. Some courts have bought these arguments, leading to incorrect conclusions that ERISA fiduciaries acted improperly because of the mere fact that they had dual loyalties.

Anderson serves as an important reminder that there are fundamental ERISA principles that must be adequately explained to judges to disabuse them of incorrect beliefs advocated by plaintiffs’ firms. One might want to consider approaching ESOP litigation and all ERISA litigation with the mindset that judges need to be given an “ERISA 101” education before addressing any of the case’s facts. This can be a key component to defending against ERISA claims.