Presumption of Prudence for Benefit Plan Investments in Employer Stock Upheld

March 2013

In Taveras v. UBS AG,1the Second Circuit affirmed the presumption of prudence doctrine (also known as the Moench doctrine)2 applicable to claims against fiduciaries of benefit plans that are invested in stock of the sponsoring employer.

Taveras involves a class action suit by current and former employees of UBS that were invested in UBS stock pursuant to two separate individual account plans maintained by UBS. The plaintiffs alleged that UBS violated various fiduciary duties under the Employee Retirement Income Security Act of 1974, as amended ("ERISA") by imprudently continuing to offer participants of the two plans the option to invest in UBS stock.

Following the Supreme Court's decision not to review the Second Circuit's adoption of the Moench doctrine in which fiduciaries of plans who offer participants the option to invest their individual accounts in employer stock are entitled to a presumption of prudence,3 the Second Circuit confirmed that the presumption applies to individual account plans based on the degree of discretion that a plan gives its fiduciaries.

After affirming the presumption, the Second Circuit determined that the presumption of prudence only applied to one of the UBS plans at issue in Taveras. In reviewing the terms of the plan documents, the Second Circuit concluded that one of the plans did not contain any language mandating or encouraging that an investment in UBS stock be offered to participants. As a result, the fiduciaries of that plan were not entitled to a presumption of prudence.

Since the presumption of prudence creates a significant burden for plaintiffs to overcome in pursuing claims against fiduciaries for imprudent investments in employer stock, the holding in Taveras emphasizes the importance of insuring that plan documents contain appropriate language mandating an employer stock investment fund. Sponsors of individual account plans with employer stock investment options should carefully review the plan documents to insure that the presumption of prudence will be available in the event a claim is made regarding the plan's investment in employer stock.

For more information on this alert or other ERISA matters, please contact:

Fred R. Green at (212) 592-5910 or [email protected]
Irwin A. Kishner at (212) 592-1435 or [email protected]

© 2013 Herrick, Feinstein LLP. ERISA Alert is published by Herrick, Feinstein LLP for information purposes only. Nothing contained herein is intended to serve as legal advice or counsel or as an opinion of the firm.

1 2013 WL 692535 (2d Cir., Feb. 27, 2013).
2 See Moench v. Robertson, 62 F.3d 553 (3d Cir., 1995).
3 See In re Citigroup ERISA Litig., 662 F.3d 128 (2d Cir., 2011).