September 27, 2021

Volume XI, Number 270

Advertisement

September 24, 2021

Subscribe to Latest Legal News and Analysis
Advertisement

Supreme Court Decisions Matter

Many workers participate in employee stock ownership plans, known as ESOPs. These retirement plans invest primarily in stock of the employer’s company.

Last week, the Supreme Court handed ESOP participants an important victory when it ruled unanimously in Fifth Third Bancorp v. Dudenhoeffer that when ESOP trustees invest in company stock they must exercise the same degree of prudence as trustees of other pension plans. The decision adopted the views of the U.S. government, presented in a brief to the court drafted by the Labor Department’s Office of the Solicitor and the Department of Justice.

Before last week’s ruling, lower courts had held unanimously that ESOP trustees are presumed to act prudently whenever they invest in company stock, regardless of their knowledge of the risks involved. But when the savings and assets of hardworking Americans are at stake, trustees need to be able to demonstrate that they’ve acted responsibly. Getting rid of the presumption will put an end to shielding trustees from liability in companies like Lehman Brothers, where the ESOP lost all its value when the company collapsed; and in Fifth Third, where the trustees purchased company stock despite knowing the risk associated with the company’s exposure to subprime mortgages.

The department’s Employee Benefits Security Administration has consistently opposed the presumption for 20 years, and its Office of the Solicitor has filed “friend of the court” briefs in most of the lower court cases. Our work finally paid off, as the Supreme Court’s decision will restore the ability of ESOP participants to have their day in court when plan trustees overpay for company stock.

This decision is hard-won victory for the Labor Department – but more importantly for working people trying to build a nest egg to support their families and secure their place in the middle class.

© Copyright 2021 U.S. Department of LaborNational Law Review, Volume IV, Number 180
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement

About this Author

The Department of Labor (DOL) fosters and promotes the welfare of the job seekers, wage earners, and retirees of the United States by improving their working conditions, advancing their opportunities for profitable employment, protecting their retirement and health care benefits, helping employers find workers, strengthening free collective bargaining, and tracking changes in employment, prices, and other national economic measurements. In carrying out this mission, the Department administers a variety of Federal labor laws including those that guarantee workers’ rights to safe and...

866-487-2365
Advertisement
Advertisement
Advertisement