A bit of fascinating news this week was mostly overlooked.
The U.S. Supreme Court, on Monday, December 3, declined to hear an appeal from State Street Bank & Trust after the 6th Circuit Court of Appeals had given the go-ahead to litigation against it. So, without having to do the work of listening to arguments or reading briefs and writing an opinion -- all that tiresome stuff -- the high court has determined this lawsuit will proceed.
The underlying lawsuit is a big enough deal to make that nod a big deal as well.
Here's a link to the 6th Circuit decision which, we now know, stands.
Before the fateful year 2008, auto giant General Motors offered its employees 401(k) plans with a variety of investment options, including mutual funds, non-mutual fund investments, and the General Motors Common Stock Fund itself. The later option was intended to enable both salaried and hourly employees to acquire an equity interest in their employer.
Defendant State Street was a fiduciary in this plan, and specifically had fiduciary responsibilities for the GM Common Stock Fund. The fund documents provided State Street with the responsibility, in the event that "there is a serious question concerning [the employer's] short-term viability as a going concern without resort to bankruptcy proceedoings" to divest employees' holdings in GM stock.
State Street eventually acted on this direction, although the plaintiffs claim it was a case of far too little and far too late. it began cashing out the GM employee interest in GM only on March 31, 2009. GM filed its bankruptcy petition on June 1 of that year, that is, two months and a day later.
Plaintiffs allege that State Street knew or should have known long before that where GM was headed, and that if they had cashed out the stock earlier they would have gotten a better price for it, thus serving faithfully in their capacity as fiduciaries.
The defendants moved to dismiss the case when it was originally brought at the district court level, and the district court judge granted that motion. The district court judge believed that there is a "safe harbor" protection for ERISA fiduciaries when the investor/beneficiaries control their own fate. Here, the fact that the employees themselves had had to voluntarily agree to put their 401(k) money into GM stock, and that the company stock wasn't even the default option for the plan, seemed to that judge to get State Street off the hook.
But in February 2012, the 6th Circuit reversed the court below. It said there is a safe harbor of sorts, but its safety is not so absolute as to absolve State Street of the duty to use "prudence when designating and monitoring the menu of different investment options...."
I hope to say something tomorrow about why this decision, now allowed to stand by SCOTUS, seems to me a very important one.
The U.S. Supreme Court, on Monday, December 3, declined to hear an appeal from State Street Bank & Trust after the 6th Circuit Court of Appeals had given the go-ahead to litigation against it. So, without having to do the work of listening to arguments or reading briefs and writing an opinion -- all that tiresome stuff -- the high court has determined this lawsuit will proceed.
The underlying lawsuit is a big enough deal to make that nod a big deal as well.
Here's a link to the 6th Circuit decision which, we now know, stands.
Before the fateful year 2008, auto giant General Motors offered its employees 401(k) plans with a variety of investment options, including mutual funds, non-mutual fund investments, and the General Motors Common Stock Fund itself. The later option was intended to enable both salaried and hourly employees to acquire an equity interest in their employer.
Defendant State Street was a fiduciary in this plan, and specifically had fiduciary responsibilities for the GM Common Stock Fund. The fund documents provided State Street with the responsibility, in the event that "there is a serious question concerning [the employer's] short-term viability as a going concern without resort to bankruptcy proceedoings" to divest employees' holdings in GM stock.
State Street eventually acted on this direction, although the plaintiffs claim it was a case of far too little and far too late. it began cashing out the GM employee interest in GM only on March 31, 2009. GM filed its bankruptcy petition on June 1 of that year, that is, two months and a day later.
Plaintiffs allege that State Street knew or should have known long before that where GM was headed, and that if they had cashed out the stock earlier they would have gotten a better price for it, thus serving faithfully in their capacity as fiduciaries.
The defendants moved to dismiss the case when it was originally brought at the district court level, and the district court judge granted that motion. The district court judge believed that there is a "safe harbor" protection for ERISA fiduciaries when the investor/beneficiaries control their own fate. Here, the fact that the employees themselves had had to voluntarily agree to put their 401(k) money into GM stock, and that the company stock wasn't even the default option for the plan, seemed to that judge to get State Street off the hook.
But in February 2012, the 6th Circuit reversed the court below. It said there is a safe harbor of sorts, but its safety is not so absolute as to absolve State Street of the duty to use "prudence when designating and monitoring the menu of different investment options...."
I hope to say something tomorrow about why this decision, now allowed to stand by SCOTUS, seems to me a very important one.
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