Seventh Circuit Affirms Presumption of Prudence in 401(k) Case

In White v. Marshall & Ilsley Corp., No. 11-2660 (7th Cir. Apr. 19, 2013), the Eleventh Circuit upheld the Moench presumption of prudence for investments in employer stock for Marshall & Ilsley's 401(k) plan. The court also ruled that the presumption applies at the pleading stage. The Marshall & Ilsley plan allowed employees to invest up to 30% of their plan assets in company stock. Plan documents required company stock to be an option. When the stock dropped sharply, employees sued. The court ruled that the plan's provisions meant that fiduciaries had to choose between the threat of being sued for making an allegedly imprudent choice to allow continued investment in the stock or be sued for not allowing it if the stock price went up later. The presumption of prudence is the only way around that dilemma, the court argued. Moreover, while the company's stock did fall, the company was not in dire circumstances. The court concluded that overcoming Moench requires "that no reasonable fiduciaries would have thought they were obligated to continue offering company stock" and that fiduciaries cannot be held liable for failing to "outsmart a presumptively efficient market," a very broad reading of the prudence presumption.