Supreme Court Asks Solicitor General for Brief in RJR Employer Stock Case

The Supreme Court may take up another employer stock case this year. It has asked the Solicitor General to prepare a brief in the case Tatum v. RJR Pension Inv. Comm., in which the Fourth Circuit Court of Appeals ruled that the standard for the fiduciaries of RJR's 401(k) plan should be whether a prudent fiduciary "would have" made the same decision, not, as the district court ruled, "could have."
The case involved the elimination of two previously frozen company stock funds as investment options in the company's 401(k) plan. Between 1999, when the funds were frozen, and 2000, when the plan was eliminated, the value of company stock had dropped sharply. The plaintiff sued after the stock later recovered sharply. The district court ruled that the plan committee had acted improperly in eliminating the plan, spending just one hour making the decision, and therefore was required to show that its decision was prudent in light overall fiduciary obligations.

The Fourth Circuit ruled the "could have" standard was too lenient and that the "would have" standard has been widely applied by other courts in a number of fiduciary contexts. That standard asks if, given all the evidence from an appropriate investigation, a prudent fiduciary would have made the same choice. The "could have" standard would mean that a much broader range of choices could still be considered prudent.