Sixth Circuit Breaks with Other Courts on Moench Presumption

In Pfeil v. State Street Bank and Trust Co., No. 10-2302 (6th Cir. Feb. 22, 2012), the Sixth Circuit Court of Appeals broke with other circuit courts on the issue of when plan trustees deserve the presumption of prudence for investments in company stock (the "Moench presumption"). Other courts have ruled that if the plan is an ESOP, or is a 401(k) explicitly designed to invest in employer stock, then company stock is considered prudent unless the fiduciaries know or should have known that the company was in dire financial circumstances.

This case looked at the ESOP component of GM's 401(k) plan. Employees could purchase shares in the plan. They challenged the trustee of the plan for retaining it as an option. State Street asked for dismissal based on the prudence presumption, but the court said its standard, as set out in Kuper v. Iovenko, 66 F.3d 1447 (6th Cir. 1995), raises a higher bar, at least at the pleadings stage.