Key Seventh Circuit Decisions For Employers In ERISA Stock Drop And 401(k) Fees Class Actions

On January 21, 2011, the U.S. Court of Appeals for the Seventh Circuit issued two important decisions for all employers who offer 401(k) plans.  These two decisions could severely undermine plaintiffs’ ability to challenge fiduciary decisions related to 401(k) plans on a class-wide basis. 

In Howell v. Motorola, Inc. (Case No. 07-3837) and Lingis v. Dorazil (Case No. 09-2796) (“Stock Drop Cases”) [link to case], the Court concluded that the“safe harbor” in 29 U.S.C. § 1104(c) of the Employment Retirement Income Security Act (“ERISA”) shielded fiduciaries from claims that the defendants failed to disclose sufficient information about an allegedly bad business transaction and that certain defendants failed to monitor the conduct of fiduciaries they had appointed.  The Seventh Circuit also determined that the fiduciaries did not violate ERISA’s duty of prudence by including the Motorola Stock Fund as an investment option in the 401(k) plan, because Motorola stock never performed so poorly as to make it an imprudent investment option.  The Seventh Circuit also ruled that one plaintiff’s release agreement, signed as part of a reduction in force, barred his breach of fiduciary duty claims, despite a carve-out for claims for “benefits” under the company’s plans.

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