Earlier this year we discussed how a NCEO analysis found that Courts Almost Always Give the Moench Presumption of Prudence For Company Stock in ESOPs. The Ninth Circuit has joined the Third, Fifth, and Sixth Circuits that have affirmatively adopted the Moench presumption. [The First Circuit is the only circuit that has rejected the Moench presumption.] Ninth Circuit Adopts Moench Presumption in Favor of Fiduciaries discusses how the United States Court of Appeals for the Ninth Circuit has adopted the Moench doctrine in Quan v. Computer Sciences Corporation, No. 09-56190, D.C. No. 2:08-cv-02398-SJO-JWJ, September 30, 2010 and some key takeaways from the case:
After the court concluded that Moench applied, it assessed the plaintiffs' claim that the CSC stock was an imprudent investment. First, the Ninth Circuit stated that a fiduciary who becomes aware of circumstances that may impair stock value does not have an immediate duty to sell employer stock. Second, a fiduciary must consider whether a sale will cause the plan to miss future increases in share value. Third, a sudden one-day drop in stock price was not an indicator of imprudence where the share value rebounded in a short period of time. Fourth, the "red flag" issues relating to the stock option plan problems were adequately investigated by CSC and therefore plaintiffs failed to establish that the fiduciaries did not act appropriately in light of the knowledge they possessed. Fifth, the Ninth Circuit confirmed that plaintiffs must show a causal link between the failure to investigate or divest and the harm suffered by the plan.
In adopting the Moench presumption, the Ninth Circuit also confirmed that plan fiduciaries are under no ERISA obligation to violate securities laws to benefit the plan's participants over public shareholders.