Open Questions About Insider Information for Plan Fiduciaries That Offer Investment in Employer Stock

We previously reported on Retirement Plans Committee of IBM et al. v. Larry W. Jander, in our June 2019 newsletter which was an employer stock-drop case from the Second Circuit. In this case, IBM workers claimed the Retirement Plans Committee breached its fiduciary duty by allowing retirement funds to be invested in artificially-inflated employer stock because the committee members knew, but did not disclose, that IBM's microelectronics division was overvalued. At oral argument, the fiduciaries argued that the decision of the lower court was wrong because ERISA does not obligate fiduciaries to use insider information and that securities laws already provide a framework addressing disclosure of material information about public companies. The Justices ultimately declined to address these arguments, and remanded the case back to the Second Circuit “to decide whether to entertain these arguments in the first instance.” While it is possible that the Second Circuit will find that the IBM defendants waived these arguments to the extent that they were not properly raised previously, hopefully the Second Circuit’s final decision will shed more light on the intersection of ERISA and securities law with respect to employer stock investment and related disclosures.

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