At issue in this case, as originally reported in PEI’s 1Q 2015 Litigation Update, is R.J. Reynolds Tobacco Company’s decision to eliminate employer stock funds as investment options, when within a year of that decision, the stock price increased dramatically due to news of a takeover bid. On remand, the court discounted the fiduciaries’ failure to amend the Plan to formally eliminate the stock funds, as it would not have affected a “prudent fiduciary’s substantive decision.” The court considered the risk/return balance of offering two “undiversified, non-related” employer stock funds, concluding that a prudent fiduciary’s market research at that time would have revealed that ongoing tobacco related litigation posed a risk to the stocks’ values, negatively impacting return potential. The court also found that the six month period (which evolved to nine months) was a reasonable time to eliminate the funds from participant communications and divestiture processing perspectives. According to the “objectively prudent” standard, the court ruled that hypothetical fiduciaries would have likewise eliminated the two stock funds given the same set of circumstances.
www.ebia.com; March 3, 2016.
www.napa-net.org; February 23, 2016.