Solicitor General Requests Supreme Court Ruling on Presumption of Prudence

In an amicus curiae brief filed on November 12, the Solicitor General argues that the Supreme Court should review the presumption that investments in company stock by ESOPs and other benefit plans are prudent by virtue of being specified in the plan. Seven circuit courts have upheld some version of the presumption of prudence. The presumption of prudence originates in a 1995 ruling in the Third Circuit's case Moench v Robertson and may be rebutted by showing that the company was in a "dire financial predicament."

The brief argues against the presumption of prudence, noting that circuits have different interpretations of the presumption. The brief states that "ERISA's basic policy objectives, in fact, counsel against a judicially fashioned presumption that ESOP fiduciaries have acted prudently." ESOP advocates argue that the presumption is consistent with Congressional intent to promote employee ownership through ERISA-covered plans and warn of a possible wave of litigation if the presumption is overcome.

The Solicitor General's request makes it likely that the Supreme Court will review the issue. If it does, a decision is likely by June 2014.