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.