Stroock Special Bulletin
"AESOP’s Foibles? SCOTUS: Being a Moench Not Enough Under ERISA"
On June 25, 2014, the United States Supreme Court, in a decision written by Justice Stephen Breyer in Fifth Third Bancorp v. Dudenhoeffer,unanimously rejected a more defendant-favorable presumption in so-called "stock-drop" litigations. In so doing, the Court ruled:
· Fiduciaries of employee stock ownership plans ("ESOPs") are not entitled to any special presumption of prudence under the Employee Retirement Income Security Act of 1974, as amended ("ERISA") when challenged in court as to whether their decision to buy or hold employer securities in an ESOP was prudent; and
· Instead, fiduciaries of ESOPs are subject to the same ERISA duty of prudence that applies to fiduciaries in general – except for ERISA's duty of diversification.
This Stroock Special Bulletin looks at the Fifth Third Bancorp decision, in which the Court effectively rejected the so-called "Moench Presumption," which held that "an ESOP fiduciary who invests the [ESOP's] assets in employer stock is entitled to a presumption that it acted consistently with ERISA."