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Fifth Third Bancorp v. Dudenhoeffer

Supreme Court of the United States

April 2, 2014, Argued; June 25, 2014, Decided

No. 12-751

Opinion

 [**2463]  Justice Breyer delivered the opinion of the Court.

The Employee Retirement Income Security Act of 1974 (ERISA), 88 Stat. 829, as amended, 29 U.S.C. §1001 et seq., requires the fiduciary of a pension plan to act prudently in  [*412]  managing the plan’s assets. §1104(a)(1)(B). This case focuses upon that  [****6] duty of prudence as applied to the fiduciary of an “employee stock ownership plan” (ESOP), a type of pension plan that invests primarily in the stock of the company that employs the plan participants.

We consider whether, when an ESOP fiduciary’s decision to buy or hold the employer’s stock is challenged in court, the fiduciary is entitled to a defense-friendly standard that the lower courts have called a “presumption of prudence.” The Courts of Appeals that have considered the question have held that such a presumption does apply, with the presumption generally defined as a requirement that the plaintiff make a showing that would not be required in an ordinary duty-of-prudence case, such as that the employer was on the brink of collapse.

We hold that no such presumption applies. Instead, ESOP fiduciaries are subject to the same duty of prudence that applies to ERISA fiduciaries in general, except that they need not diversify the fund’s assets. §1104(a)(2).

Petitioner Fifth Third Bancorp, a large financial services firm, maintains for its employees a defined-contribution retirement savings plan (Plan). Employees may choose to contribute a portion of their compensation to the Plan as retirement  [****7] savings, and Fifth Third provides matching contributions of up to 4% of an employee’s compensation. The Plan’s assets are invested in 20 separate funds, including  [**2464]  mutual funds and an ESOP. Plan participants can allocate their contributions among the funds however they like; Fifth Third’s matching contributions, on the other hand, are always invested initially in the ESOP, though the participant can then choose to move them to another fund. The Plan requires the ESOP’s funds to be “invested primarily in shares of common stock of Fifth Third.” App. 350.

 [*413]  Respondents, who are former Fifth Third employees and ESOP participants, filed this putative class action in Federal District Court in Ohio. They claim that petitioners, Fifth Third and various Fifth Third officers, were fiduciaries of the Plan and violated the duties of loyalty and prudence imposed by ERISA. See §§1109(a), 1132(a)(2). We limit our review to the duty-of-prudence claims.

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573 U.S. 409 *; 134 S. Ct. 2459 **; 189 L. Ed. 2d 457 ***; 2014 U.S. LEXIS 4495 ****; 82 U.S.L.W. 4578; 58 Employee Benefits Cas. (BNA) 1405; 24 Fla. L. Weekly Fed. S 908; 2014 WL 2864481

FIFTH THIRD BANCORP et al., Petitioners v. JOHN DUDENHOEFFER et al.

Notice: The LEXIS pagination of this document is subject to change pending release of the final published version.

Prior History:  [****1] ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Dudenhoefer v. Fifth Third Bancorp, 692 F.3d 410, 2012 U.S. App. LEXIS 18622 (6th Cir. Ohio, 2012)

Disposition: Vacated and remanded.

CORE TERMS

fiduciaries, stock, invested, prudent, imprudent, circumstances, ownership, insider, plans, allegations, retirement, inside information, documents, employees, collapse, publicly, diversification, diversify, benefits, funds, buy, available information, purchases, disclose, holdings, savings, trading, brink, potential for conflict, pleading stage

Business & Corporate Compliance, Fiduciaries, Fiduciary Responsibilities, Duty of Prudence, Pensions & Benefits Law, Pension Benefit Plans, Eligible Individual Account Plans, Employee Stock Ownership Plans, General Overview, Plan Administration, Diversification Rule, Governments, Legislation, Interpretation, Civil Procedure, Defenses, Demurrers & Objections, Motions to Dismiss, Failure to State Claim, Securities Law, Securities Exchange Act of 1934 Actions, Insider Trading, Duty to Abstain & Disclose