<nobr>Feb 18, 2011</nobr>

ERIC Urges Appeals Court to Uphold District Court's Dismissal of "Stock Drop" Case

ERIC News Release
For Immediate Release: February 18, 2011

Washington, D.C. -- The ERISA Industry Committee (ERIC) on February 15 filed with the U.S. Court of Appeals for the Eleventh Circuit an amicus curiae ("friend of the court") brief, urging the Court to affirm a lower court's dismissal of an employer "stock-drop" lawsuit. The case is Sewright v. ING Groep, NV, et al.

The plaintiffs in Sewright argued that ING should have prevented employees from being able to purchase the stock when the price dropped as a result of the economic recession. The ING plan required that employees be provided the option of purchasing company stock.

ERIC's brief argues that the plan was obligated to comply with the plan, which required offering employer stock -- as Congress encouraged. Therefore, offering the stock was not discretionary and therefore not a fiduciary action. The Employee Retirement Income Security Act (ERISA) and prior court cases clearly hold that compliance with the plan document is properly presumed to be an appropriate standard of care by a plan administrator.

According to ERIC, the ability to purchase employer stock in defined contribution plans is not accidental. Both ERISA and the Internal Revenue Code encourage employers to offer employer stock funds and exempt employer stock programs from certain requirements that would otherwise get in the way of employees purchasing stock.

The brief argues that only discretionary conduct is subject to ERISA's fiduciary standards, that compliance with the requirements of a plan document by the plan administrator does not constitute discretionary conduct, and that the requirement the plan permits the purchase of employer stock was a lawful provision of the plan.

Litigation of this kind, said ERIC, "places the fiduciaries on the horns of a dilemma." They can be sued if they follow the terms of the plan and allow the plan to continue investing in employer stock; they can be sued if they override the terms of the plan by forbidding the purchase of additional employer stock or liquidating the plan's current holdings of employer stock, and they could be sued if they provide information about the company to plan participants that they do not provide to other shareholders.

In addressing the Department of Labor's contention that there is no rationale for applying the presumption of prudence where the fiduciaries should have known that the stock was artificially overpriced, the brief argues that the fact a stock has been "overpriced" can only be known in retrospect after a change in circumstance causes the price to drop. "The contention that fiduciaries should allow plan investment in employer stock only when that stock is not going to fall in value would not require them to be merely prudent; it would require them to be clairvoyant," the brief argues.

Moreover, by suggesting such clairvoyance, the Department of Labor's position opens the door to liability of plan administrators for failing to act in a host of circumstances over which they have no control, cannot know about in advance, or are not in a position to take action.

The brief further argues that federal securities laws comprehensively regulate disclosures in connection with securities offerings and protect investors (including plan participants) from being misled. To that end, ERIC argues that there is no justification for creating common-law rules under ERISA to regulate such disclosures since such common-law rules would undermine important objectives of both ERISA and the securities laws.

Finally, the brief notes that, since Congress addressed "strike suits" under the securities laws, abusive ERISA "stock drop" suits have become commonplace. ERIC argues that the pursuit by litigators of "stock drop" suits is weakening the employee-benefit system and attempting to circumvent the laws governing securities litigation. ERISA should be construed to discourage such litigation.

Indeed, ERIC President Mark Ugoretz said "the district court ruling must be allowed to stand, otherwise you will continue to see a deluge of litigation from participants merely second-guessing plan fiduciary decisions, further jeopardizing the employer-sponsored retirement system."

A link to ERIC's brief appears below.

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For more information:
Ted Godbout
Director, Communications
The ERISA Industry Committee
1400 L Street, NW, Suite 350
Washington, DC 20005
Phone: (202) 789-1400
tgodbout@eric.org
www.eric.org
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The ERISA Industry Committee (ERIC) is a non-profit association committed to representing the advancement of the employee retirement, health, and compensation plans of America's largest employers. ERIC's members provide benchmark retirement, health care coverage, compensation, and other economic security benefits directly to tens of millions of active and retired workers and their families. ERIC has a strong interest in proposals affecting its members' ability to deliver those benefits, their cost and their effectiveness, as well as the role of those benefits in the American economy.

ERIC Amicus Brief in Sewright

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