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COLLECTED WISDOM™ on Company Stock in 401k Plans

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Aon Drops Company Stock Fund From Its $5.3B 401k Plan

Abstract: Aon is terminating the company stock fund as an investment option in its $5.3 billion 401k plan. The Aon Stock Fund will be liquidated and removed from the plan by the end of December 2017, the company said in its latest filing with the Securities and Exchange Commission.

Source: Bna.com (registration may be required), July 2017

Marathon Petroleum Execs Sued Over Stock in Retirement Plan

Abstract: Marathon Petroleum executives are accused in a new lawsuit of wrongly allowing workers to invest their retirement savings in the stock of Marathon Oil Corp.

Source: Bna.com (registration may be required), July 2017

The Quandary of Publicly-Traded Employer Stock in a 401k Plan

Abstract: This article examines the quandary that employer stock funds pose for plan sponsors, who must navigate ERISA's careful balance of (1) ensuring fair and prompt enforcement of employee rights under employer-provided retirement plans while (2) encouraging employer creation of these plans.

Source: Employeebenefitsblog.com, June 2017

SEC Guidance on Registration of 401k Plan Interests When Brokerage Windows are Offered

Abstract: On September 22, 2016, the SEC released a Compliance and Disclosure Interpretation addressing the application of the registration requirements to offers and sales of employer securities under 401k plans that (i) do not include a company securities fund but (ii) do allow participants to select investments through a self-directed brokerage window. Open brokerage windows typically allow plan participants to invest their 401k accounts in publicly traded securities, including, in the case of a public company employer, company stock.

Source: Benefitsbryancave.com, November 2016

Brokerage Account Windows in Your 401k Plan: Company Stock Issues

Abstract: The SEC recently published a new interpretation discussing the requirements for registering an offering of employer stock on a Form S-8. Question 139.33 discusses whether an employer must file a Form S-8 registration statement for employer stock if the stock may be purchased by 401k plan participants through a brokerage account window.

Source: Wifilawgroup.com, October 2016

Does Brokerage Window Require Company Stock Offering Registration?

Abstract: The SEC recently weighed in on whether offering a brokerage window in a 401k through which investments in employer securities can be made involves an offer of employer securities requiring Securities Act registration.

Source: Planadviser.com, September 2016

Does Social Conformity Influence Portfolio Choice? Evidence From 401k Allocations

Abstract: Financial researchers agree that allocating money to employer stock in a 401k plan is a poor strategy, yet many employees do so. This research finds evidence that social conformity contributes to this selection. Specifically, the percentage allocated to company stock by employees in the 401k plan is positively related to both the net open-market purchases of company stock by management and the percentage of the defined benefits plan invested in company stock.

Source: Ssrn.com, September 2016

Piling Up Losses in a "Self-Directed" 401k Account

Abstract: One recent Securities and Exchange Commission filing offers an unusually granular glimpse into how much risk some employees take with their retirement money by having an overconcentration of company stock in their 401k plan.

Source: Wsj.com, July 2016

401k Participant Sues Target Over Company Stock

Abstract: Recognizing the new pleading standards set forth in Fifth Third v. Dudenhoeffer, the lawsuit suggests alternative actions plan fiduciaries could have taken rather than continuing to allow investments in company stock.

Source: Planadviser.com, July 2016

Edison Executives Beat ERISA Challenge to Stock Losses

Abstract: Two Edison International Inc. executives convinced a federal judge to dismiss a lawsuit attacking their decision to offer workers Edison stock in the company's 401k plan.

Source: Bna.com, July 2016

Three Companies Removing Company Stock Funds From DC Plans

Abstract: Three companies are removing or have removed employer-stock funds from six defined contribution plans, according to the companies' recent 11-K filings with the Securities and Exchange Commission.

Source: Pionline.com, June 2016

Company Stock in Your 401k? Don't Make My Costly Mistake

Abstract: Company stock in your 401k has special rules, specifically an available tax treatment called Net Unrealized Appreciation. Under the right circumstances, you pay only the capital gains tax rate on appreciation, rather than regular income rates. Proceed with caution any time you consider selling, rolling over, or withdrawing shares of company stock in your plan.

Source: Seekingalpha.com, June 2016

BP Deepwater Stock Drop Suit Gets DOL and SEC Consideration

Abstract: The complicated litigation Whitley v. BP PLC is just the latest stock drop case to be impacted by the big-ticket Supreme Court decision in Dudenhoeffer v. Fifth Third Bancorp, this one earning "friend of the court briefs" from both DOL and SEC.

Source: Planadviser.com, March 2016

SCOTUS Shuts Down Ninth Circuit's Stock-Drop Decision...Again

Abstract: In Harris v. Amgen, the U.S. Supreme Court recently reversed, for the second time, a decision by the U. S. Court of Appeals for the Ninth Circuit holding that participants in an employee stock ownership plan had validly stated a claim that plan fiduciaries had breached their duty of prudence by continuing to invest ESOP assets in employer stock.

Source: Benefitslawinsider.com, March 2016

On Remand, Plan Fiduciaries' Decision to Divest Nabisco Stock Fund Found Prudent

Abstract: In Tatum v. R.J. Reynolds Tobacco Co., on remand from the US Court of Appeals for the Fourth Circuit, the Middle District of North Carolina applied the standard provided by the Fourth Circuit and held that a hypothetical prudent fiduciary would have decided to divest Nabisco company stock funds from its 401k plan, and that the plan fiduciaries were therefore not personally liable for damages.

Source: Practicallaw.com, February 2016

High Court Helps Employers Avoid Frivolous 401k Stock-Drop Suits

Abstract: Based on Dudenhoeffer and Amgen, it is clear that the Supreme Court believes that requiring specific, plausible allegations in the plaintiff's complaint will help avoid frivolous 401(k) stock-drop suits from surviving beyond a motion to dismiss. However, it is likely that future plaintiffs will use the road map provided in those cases to craft complaints that are likelier to survive a motion to dismiss in hopes of reaching a settlement or receiving a favorable judgment.

Source: Dentons.com, February 2016

How Has Supreme Court Decision Affected Litigation Over Company Stock in Retirement Plans?

Abstract: Many observers believed Fifth Third Bancorp v. Dudenhoeffer would significantly increase litigation concerning company stock in retirement plans. That clearly has not happened yet. In tracking this type of litigation since 1990, there have been far fewer lawsuits initiated over stock-drop issues after the Dudenhoeffer ruling than in the years before the decision.

Source: Natlawreview.com, January 2016

New Best Practices Are Emerging for Company Stock in DC Plans

Abstract: Is the company stock option a legacy feature that needs a closer look? This article revisits the role of company stock in a defined contribution plan. It's a role that is changing.

Source: Russell.com, November 2015

Revisiting Company Stock in Defined Contribution Plans

Abstract: Defined contribution plan participants have been advised for decades on the benefits of diversification, but many still hold large portions of their account balance in employer securities. That poses risks not only for the participants, but for plan sponsors as well.

Source: Cfo.com, October 2015

The New Landscape for Company Stock in DC Plans

Abstract: Company stock has a long tradition in retirement plans, but sponsors should consider taking a more proactive approach to managing and monitoring company stock as an investment option for their participants. Article provides steps to ensure your company stock policies helps protect you and your participants.

Source: Ssga.com, September 2015

Company Stock in Defined Contribution Plans

Abstract: The findings of this survey of 160 employers with company stock in their DC plans show that companies are paying close attention to the Fifth Third decision. A majority of responding companies have reviewed or are planning to review their procedures for monitoring company stock, investment policy statements and plan documents. In addition, more than one-third already have or are considering retaining a third party as an independent fiduciary, and slightly more than one-fourth have initiated or are considering the elimination of company stock.

Source: Towerswatson.com, May 2015

Company Stock in Retirement Plans: Where the Line Between Prudent and Imprudent Conduct?

Abstract: How can it possibly make any sense to have company stock holdings in a 401k plan or to have company matches to retirement savings be in the form of company stock? The author's answer is it doesn't. So, if it doesn't make any sense from the perspective of a participant, then how can it ever be a prudent decision for a fiduciary?

Source: Bostonerisalaw.com, April 2015

Failing 401k Sponsors Cling to Their Own Stock

Abstract: Companies with high levels of their own stock in their retirement plans often fail to scale back their exposure even when they're heading into financial straits, according to a new study. The result, the study said, can lead to significant losses to participants' retirement savings, suggesting a need for limits on how much such stock should be held by a company plan.

Source: Benefitspro.com, February 2015

Company Stock in 401k's: Proceed With Caution

Abstract: 401k plans have made great strides in recent years--reducing costs, simplifying investment menus, and automating portfolio allocation. Even the concentrated ownership of company stock in retirement plans is less common than a few years ago. Still, it's no less risky.

Source: Morningstar.com, January 2015

Company Stock in DC Plans: An Update

Abstract: Since 2005, the incidence of company stock in DC plans has declined. Fewer plans offer employer stock and fewer participants hold concentrated company stock positions in their retirement savings accounts. A higher proportion of plans offering company stock now impose restrictions on the option. This is an update of prior research on the changing nature of company stock in employer plans

Source: Vanguard.com, December 2014

Employer Stock Plan Fiduciaries Can Take Liability-Shielding Measures, Attorneys Say

Abstract: The Dudenhoeffer ruling, while on its face benefitting participants in employer stock plans by eliminating a common defense to suits challenging declining stock value, but the ruling also erected significant barriers for plaintiffs bringing stock-drop claims, attorneys said in a panel presentation.

Source: Bna.com, November 2014

Lack of Standing Fatal to ERISA Stock Drop Claims

Abstract: For plan administrators, the UBS litigation underscores the potential insulating effect of drafting plan documents that require investment in the company's own stock. For practitioners on both sides, the District Court's decision is a reminder always to consider fundamental, threshold issues such as standing when bringing or defending an ERISA case.

Source: Benefitslawinsider.com, November 2014

Farewell to Company Stock, or Not?

Abstract: This article deals with DC litigation around company stock and the potential effect of the recent Supreme Court decision in Fifth Third Bancorp v. Dudenhoefferon. It suggests that the risk to plan sponsors of offering company stock may be slightly higher given the Court's rejection of the presumption of prudence and explains that simply "hardwiring" company stock into a DC plan document and then following the document without more process will not be sufficient.

Source: Pimco.com, October 2014

Companies With Stock Funds in 401k Plan Should Review Compliance in Light of Recent SEC Enforcement Actions

Abstract: Most public companies offer a company stock fund investment option under their 401k plans and non-qualified excess 401k plans. On September 10, the SEC announced enforcement actions against 34 companies and insiders (directors, officers, and 10% owners) for failing to file timely reports for stock transactions. The enforcement actions came without warning, after more than a decade of little or no SEC enforcement in this area.

Source: Winston.com, September 2014

The Fiduciary Quicksand of Acquiring, Holding and Selling Employer Stock

Abstract: Congress knew that holding large amounts of employer stock in a company's pension plan created significant tension between the intrinsically high risk of a single stock and the demands of a fiduciary's standard of conduct. Five page article gets into detail on the legal and fiduciary foundation of holding employer stock in a plan.

Source: Erisafiduciaryadministrators.com, August 2014

401k's With Company Stock Fading Fast

Abstract: The practice of throwing company shares into retirement plans has been waning for some time, but a recent Supreme Court decision could hasten its demise. ERISA experts say the blow to the Moench Presumption is just one more among many reasons to leave company stock out of retirement plans.

Source: Benefitspro.com, July 2014

Supreme Court Rejects Special "Presumption of Prudence" for Employer Stock

Abstract: The U.S. Supreme Court held that there is no special presumption of prudence applicable to fiduciaries with respect to employer stock. The Court has, however, provided a roadmap to the lower courts to use in evaluating whether a claim can proceed, the threshold for which may not be particularly easy for plaintiffs to meet. This roadmap also serves as guidance to plan fiduciaries in connection with employer stock investments.

Source: Drinkerbiddle.com, June 2014

Supreme Court Makes Company Stock a Riskier Choice for Employers

Abstract: Employers will have to think twice about offering company stock as a retirement option after the U.S. Supreme Court removed a key protection against lawsuits claiming it was imprudent to hold the shares in individual retirement accounts.

Source: Forbes.com, June 2014

The Evolution of Company Stock in DC Plans

Abstract: Company stock has historically played an important role within certain DC plans in the United States, particularly those sponsored by large firms. This report begins with an overview of factors unique to company stock in DC plans. Next it provide an overview of the characteristics of plans sponsors actively offering company stock and the nature of company stock restrictions. Then the report considers two simple regression models, incorporating both participant demographics and plan design features, to examine holdings of company stock. Finally, report concludes with a discussion of findings and with implications for plan sponsors.

Source: Vanguard.com, June 2014

Four Reasons the Feds Are Examining Company Stock in 401k Plans

Abstract: Recently the U.S. Supreme Court announced that it will review Fifth Third Bancorp v. Duddenhoeffer, a case about the appropriateness of offering company stock in a 401k plan. Why would the federal government be concerned about company stock in 401k plans? Here are some potential reasons.

Source: Benefitnews.com, February 2014

Case Underscores Importance of Plan Documents When Plans Hold Company Stock

Abstract: A recent Northern District of Georgia case illustrates how, by having clear language in the plan documents, employers can protect fiduciaries from risks of fiduciary liability associated with having a company stock fund among their defined contribution plan investments.

Source: Mazconlaw.com, November 2013

Employee Stock Consideration in 401k Plans

Abstract: This paper will provide an overview of the various considerations for plan sponsors that currently include employer stock or are thinking about doing so should be aware of. Paper includes an overview of: employer stock in 401k plans today, fiduciary considerations for plan sponsors, the human capital dynamic, and other risks associated with holding an individual security.

Source: Morningstar.com, August 2013

Employer Stock Ownership in 401k Plans and Subsequent Company Stock Performance

Abstract: Employer stock is still a common investment in 401k plans, although it is becoming less common. Past research has noted mixed findings regarding the potential benefits and costs associated with owning employer stock. This paper explores the historical relationship between employee stock ownership in 401k plans and subsequent company stock return. Over the time period studied, authors find that firms with comparatively high allocations to employer stock in 401k plans have tended to underperform those without.

Source: Morningstar.com, August 2013

Stock-Drop Cases Reinforce Need for Due Diligence

Abstract: Because of the fiduciary implications, the inclusion of company stock within a retirement plan has been a frequent target of litigation in recent years. A substantial body of case law has been developed regarding the standards that apply to judicial review of fiduciaries' decisions regarding company stock. A trio of cases from last year, however, underscore that courts may take different approaches in reviewing fiduciary actions.

Source: Vanguard.com, March 2013

New ERISA Fiduciary Concern When Employer Stock Offered as 401k Plan Option

Abstract: Plan sponsors offering employer stock funds should evaluate whether they should separate the SPD/prospectus into two documents. The Dudenhoefer decision increases the risk that plan fiduciaries may be held responsible for a breach of fiduciary duty in the event statements in the SEC filings (that are incorporated by reference in the SPD) are found to be misleading or incorrect. Separating these documents increases the likelihood that a court would view the SEC filings as distinct from an ERISA document.

Source: Drinker Biddle & Reath LLP, February 2013

Is Your 401k Holding Too Much Company Stock?

Abstract: Following the holiday season, many will feel the effects of overindulging on festive sweets. It turns out that your 401k also suffers when indulging on too much of a good thing. When choosing 401k investments, many employees have the option to buy an ownership stake in the company by electing to purchase employer stock. Management encourages this type of investment because employees will think more like owners. But employees should carefully consider before loading up on company shares.

Source: Marottaonmoney.com, December 2012

Dump Your Company's Stock Out of Your 401k

Abstract: If you hold your employer's stock in your 401k dump it; if you are a plan sponsor you should terminate any option for company stock in your plan. In fact, the SEC and Department of Labor should prohibit it.

Source: Forbes, April 2012

The Evolution of Company Stock in Defined Contribution Plans

Abstract: Historically, company stock has played an important role in some DC plans, but the incidence of company stock in DC plans has declined. Employer-directed contributions remain the dominant factor associated with participants holding a concentrated position in company stock. Vanguard Center for Retirement Research looks at how company stock is offered in plans today and examines participant utilization of company stock.

Source: Vanguard Center for Retirement Research, March 2012

Second Circuit Joins Five Other Circuits in Ruling Company Stock Investments in 401k Plans Are Presumptively Prudent

Abstract: Given the Second Circuit's embrace of the presumption of prudence standard, it is incumbent on all 401k plan fiduciaries to again review their 401k plan's company stock investment language. Properly drafted company stock language may help ensure the presumption of prudence is applied in the event the price of company stock rapidly declines.

Source: Winston & Strawn LLP, October 2011.

DOL Opines on QPAM Issue in Stable Value Context

Abstract: For the second time in 2011, the DOL has issued an ERISA advisory opinion that considers the PTE 84-14 qualified professional asset manager (QPAM) exemption, this time in the stable value context. PTE 84-14 provides helpful and widely utilized relief for transactions between an "investment fund" managed by a QPAM and a party in interest to employee benefit plans invested in that fund.

Source: Sutherland Asbill & Brennan LLP, June 2011.

Offering Company Stock As an Investment Option in Retirement Plans

Abstract: Given the current wave of lawsuits over plummeting stock prices and retirement plan mismanagement relating to company stock, it is more important than ever to be aware of the risks of fiduciary liability associated with offering company stock in a retirement plan.

Source: McKenna Long & Aldridge LLP, June 2011.

Company Stock Revisited: Some Good News, Room for Improvement

Abstract: Among plans offering company stock, the number of participants holding a concentrated position (more than 20% of their account balance) fell from 42% in 2005 to 30% in 2009, according to How America Saves 2010, our annual report on Vanguard-recordkept DC plan data.

Source: Vanguard, October 2010.

The Price of Offering Employer Stock in Your 401k Plan

Abstract: In favorable economic times, offering company stock as an investment option allows employees to share in the success of the company, engendering a sense of loyalty by linking the employee's and employer's fortunes together. But when things go awry, that same loyalty often disintegrates into allegations of fiduciary misconduct, lawsuits and financial settlements. So what can other fiduciaries learn from these situations?

Source: Employee Benefit Solutions, August 2010.

IRS Issues Final Regs on Diversification Requirements for Company Stock

Abstract: The Internal Revenue Service is issuing final regulations under section 401(a)(35) of the Internal Revenue Code relating to diversification requirements for certain defined contribution plans holding publicly traded employer securities.

Source: Planadviser.com, May 2010.

401k Plans Still Gorged with Company Stock

Abstract: After thousands of employees at now-defunct corporations such as Enron and WorldCom saw their retirement savings wiped out early in this decade, things were going to be different. But efforts to wean employees from in-house shares have gone begging.

Source: Financial Week, January 2008.

401k Sponsors Addressing Challenges Raised by Stock Market Volatility

Abstract: Corporate scandals and the stock market's ups and downs have created new challenges for 401k plan sponsors and fiduciaries, but they appears to be rising to the challenge. This article outlines some of the actions taken by plan sponsors.

Source: Benefitslink.com, August 2006.

Directors and the Duty to Monitor under ERISA (Part II)

Abstract: Recent cases provide some insight into how the courts are dealing with this ongoing issue as it relates to 401k company stock cases which are making their way through the courts. There are now a whole host of recent cases (stemming from the economic turmoil of the past few years) which have made it past the motion to dismiss phase, two of which have seemingly reached opposite results on the issue and are worthy of discussion.

Source: Benefitsblog.com, May 2004.


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