Outside Publication

The End of the Prudence Presumption in ERISA Stock Drop Litigation – Fifth Third Bancorp v. Dudenhoeffer and Its Aftermath

Bender's California Labor & Employment Bulletin

May 2015

Last summer, the United States Supreme Court issued a much-anticipated and unanimous decision in Fifth Third Bancorp v. Dudenhoeffer.

The Court held that fiduciaries of an employee stock ownership plan (‘‘ESOP’’), which is a qualified retirement plan designed to primarily invest in employer securities, are not entitled to a ‘‘presumption of prudence’’ when a participant challenges decisions to acquire or hold employer stock. These ‘‘stock-drop’’ claims, brought as violations of the fiduciary duty of prudence under the Employee Retirement Income Security Act of 1974, as amended (‘‘ERISA’’), had become commonplace threats to ESOP fiduciaries, mitigated by holdings of seven courts of appeal that had adopted the prudence presumption.

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