Winter 2021

Single Stock Fund Litigation: A Growing Circuit Court Split

Over the span of three months in 2020, two different Courts of Appeal (the Fourth and Fifth Circuits) addressed the fiduciary implications under ERISA of maintaining a single stock fund in a retirement plan investment lineup. The Fourth Circuit’s split decision in Quatrone v. Gannett Co., Inc., 1) together with the Fifth Circuit’s decision in Schweitzer v. Investment Committee of Phillips 66 Savings Plan, 2) highlight the dilemma for retirement plan sponsors and fiduciaries, who, as a result of a corporate transaction, inherit a plan investment fund consisting of a single class of stock that does not constitute an employer security for purposes of ERISA (i.e., a “single stock fund”). Plan fiduciaries in these circumstances have been the target of class action lawsuits alleging that they breached their fiduciary duties both by liquidating a single stock fund too soon and for not liquidating a single stock fund soon enough. While the federal courts are still evaluating how to handle these single stock fund cases, a plan fiduciary’s potential exposure for continuing to offer a single stock fund in a retirement plan appears to turn, at least in part, on the manner in which ERISA’s duties of prudence and diversification apply to the single stock fund as a plan investment option.

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