November 29, 2004
BB 04—120

In this issue:

  • Council files amicus brief in 401(k) company stock investment case

Council files amicus brief in 401(k) company stock investment case

The American Benefits Council filed an amicus (friend of the court) brief on November 24, 2004, with the U.S. Court of Appeals for the Third Circuit in the case of In re Schering-Plough Corporation ERISA Litigation. At issue in the case is whether the District Court for the District of New Jersey properly dismissed the appellants' claim for breach of fiduciary duty by the plan sponsor by continuing to offer a company stock fund as one of the retirement plan investment choices.

In this case, the plan assigned responsibility for selecting plan investment options to an investment committee and authorized the committee to designate a fund investing in the company's common stock as an option. The plan did not require participants to invest any portion of their account balances in this or any other investment choice and, in fact, prohibited participants from investing more than 50 percent of their account balances in the employer stock fund. The appellants contended that the plan fiduciaries should accept responsibility for a period of disappointing market performance of the company's stock because the fiduciaries imprudently offered the stock fund as an investment choice. The district court dismissed the appellants' claim.

The Council's brief makes three arguments in support of the plan sponsor in the appeal of this case. The brief notes that a fiduciary's compliance with the plan's terms by permitting investment in employer stock is consistent with ERISA's fiduciary requirements. Based upon previous case law, plan participants must prove that an extreme decline in a company stock's value occurred with the plan fiduciary knowing the true financial condition of the company in order for it to be a breach of an ERISA duty. In addition, any weakening of previous case law would undermine Congress' current policy of favoring employee stock ownership, expose plan fiduciaries to constant litigation, and would inhibit the continued growth of 401(k) plans.

The brief describes the impact on employer-sponsored retirement plans of increased litigation that seeks to expand the fiduciary obligations relating to the provision or elimination of a stock fund as an investment choice. The brief argues that the recent wave of company stock fund ERISA litigation is discouraging plan sponsors from making company stock an available investment option and thus discourages broad based equity ownership in a company by employees of that company. For more information about this amicus brief, please contact Lynn Dudley, Council vice president & senior counsel, at (202) 289-6700.


The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.