Securities Law v. ERISA Duties

Lawsuits by 401(k) plan participants related to employer stock in a 401(k) plan are nothing new. These lawsuits typically allege that ERISA plan fiduciaries failed to protect employees' retirement savings when the employer stock price falls. In the wake of the U.S. Supreme Court's Dudenhoeffer decision, which included the elimination of the presumption of prudence, these suits are often dismissed. However, during oral arguments for the case of IBM et al. v. Jander et al., the Supreme Court is now faced with reconciling the tension between federal securities law and ERISA fiduciary duty standards. The IBM case asks whether IBM insiders, who were also plan fiduciaries, were required to promptly disclose IBM's struggles that led to a drop in IBM's stock price. IBM argued that the justices should "address fiduciaries' obligations under securities law when deciding what standards courts should use to evaluate ERISA stock cases." IBM workers, on the other hand, contended that IBM should have made an earlier disclosure of its failing microelectronics business based on ERISA fiduciary duty standards. Some commentators expect conservative justices to side with IBM given the tension that arises when requiring ERISA plan fiduciaries to disclose inside information, while others suggest, in line with Justice Breyer's comments, that the question the Court agreed to decide was under ERISA, not securities law. At this stage, it is unclear what direction the case will go -- we will keep you updated on the Court's decision.

KMK Law articles and blog posts are intended to bring attention to developments in the law and are not intended as legal advice for any particular client or any particular situation. The laws/regulations and interpretations thereof are evolving and subject to change. Although we will attempt to update articles/blog posts for material changes, the article/post may not reflect changes in laws/regulations or guidance issued after the date the article/post was published. Please consult with counsel of your choice regarding any specific questions you may have.


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