<nobr>Aug 7, 2006</nobr>

District Court Rejects Claim for Fiduciary Breach Related to Employer Stock Fund

Earlier this year, in In re Reliant Energy ERISA Litigation (“Reliant”), the district court for the Southern District of Texas held that an employer did not breach its fiduciary duty by offering an employer stock fund as an investment option when the benefits committee had no discretion to eliminate the offering. The plaintiffs claimed that defendants Reliant Energy, Incorporated (REI) and the individual members of the REI Savings Plan Benefits Committee breached their fiduciary duty under ERISA by: 1.) offering REI common stock as an investment in the plan, despite public and non-public information indicating that the stock was an imprudent investment; and 2.) negligently making misrepresentations in REI filings with the SEC that were incorporated by reference into the Form S-8 provided to Plan participants.

The REI Savings Plan offered participants the opportunity to contribute a portion of their compensation to the Plan, and offered a number of investment options, including the REI Stock Fund. The company matched participant’s contributions to the Plan in REI stock that was allocated to the REI Stock Fund. The Plan required that the REI Stock Fund be and investment option under the plan at all times, and prohibited the investment of amounts in the participant’s Employer Matching Accounts or ESOP Account to be invested in any other vehicle. The court held that contrary to the plaintiff’s assertion, defendants had no discretion, and therefore no duty, to “override” the plan’s terms.

Plaintiffs are appealing the decision with support from AARP as amicus.

Text Files:

Reliant Decision

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