Lessons for Retirement Plans with Company Stock
Dudenhoeffer v. Fifth Third Bancorp
If you have company stock as an investment option in your company sponsored retirement plan, you have probably heard of the Dudenhoeffer v. Fifth Third Bancorp Supreme Court decision. The Fifth Third Bancorp Employee Sponsored Ownership Plan (ESOP) contributed company stock to employees’ retirement accounts as a match to their salary deferrals. Typically, ESOP contributions are not linked to employee contributions. This Supreme Court decision ruled that there is no presumption of prudence to protect fiduciaries of ESOPs. Many believe this carries over to non-ESOP plans that have company stock within the plan.
In the settlement agreement (filed in 2016), Fifth Third settled for $6,000,000 and agreed to the following:
Fifth Third will continue to fund the matching contributions in cash and not stock.
Fifth Third will send out annual notices to participants that hold more than 20% of their account in company stock.
Fifth Third will provide education to participants about the benefits of asset allocation and diversification.
Fifth Third will conduct fiduciary training to the committee members twice per year.
Fifth Third will freeze the company stock investment and not allow employees to purchase any new shares. Employees will be able to sell the stock.
One item not listed is that companies have the fiduciary obligation to determine if the stock is a prudent option to be included in the plan. Many companies utilize stock in the plan to allow employees to share ownership. Retirement Plans that have company stock require special care to ensure that they limit the overall liability to the company and the fiduciaries.
By understanding the implications of this settlement, companies can better manage their fiduciary obligations with respect to oversight of company stock