PLANSPONSOR - April/May 2021 - 8

RULES & REGULATIONS
Court Rejects Another
Stock Drop Claim
The 9th U.S. Circuit Court of Appeals
has ruled to affirm a district court's
decision against the plaintiffs in a stock
drop lawsuit known as Wilson v. Craver.
The complaint was filed after Southern
California Edison Co. (SCE), a subsidiary
of Edison International, was charged
with " fraud by concealment " in a dealing
with the California Public Utilities
Commission (CPUC). When a settlement
was announced in that action, it
apparently raised investors' confidence
in Edison, thus raising its stock price.
However, after the settlement, it was
revealed over time that Edison failed to
deliver certain communications, which
caused its stock price to fall.
The plaintiffs say the defendants
breached their fiduciary duties by
allowing the employee stock ownership
plan (ESOP) to continue to purchase
company stock on employees' behalf
even as they allegedly expected the
stock price to fall if, and when, certain
damaging information related to the
fraud was disclosed. The plaintiffs
appealed the case to the 9th Circuit after
the U.S. District Court for the Central
District of California found that their
complaint failed to propose alternative
actions that a prudent fiduciary would
not have viewed as more likely to harm
the fund than help it, as required by the
standard in the Supreme Court's influential
2014 ruling in Fifth Third Bancorp
v. Dudenhoeffer.
The ruling shares in the conclusions
reached by various other circuit
courts trying similar cases. This is to say
the panel has held that arguments based
on general economic principles are not
enough on their own to successfully plead
duty-of-prudence violations under the
Employee Retirement Income Security
Act (ERISA). Rather, as seen in the 4th
U.S. Circuit Court of Appeals, plaintiffs
must set out specific facts describing how
defendants failed to monitor a fund or to
act loyally and how such lapses led to a
failure to remedy a specific defect, which
then led to a loss to the plan.
Alight Wins Judgment
In PRT Case
A federal judge has ordered a judgment
in favor of Aon Hewitt Investment
Consulting and Alight Solutions-Hewitt
changed its name to Alight Solutions in
June 2017-in a case alleging breaches
of Employee Retirement Income Security
Act (ERISA) fiduciary duties related to
pension risk transfer (PRT) transactions.
Following a bench trial, the U.S.
District Court for the Middle District
of Florida said the defendants " acted
prudently and reasonably in administrating,
investing and terminating the
pension plan. " In addition, the court said
Alight Solutions is " entitled to judgment
in its favor as a matter of law because the
portion of the business it purchased from
Hewitt Associates LLC did not perform
any portion of the contract with plaintiffs
and did not inherit any associated liability. "
The case went to trial after a magistrate
judge recommended the rejection of
dismissal motions filed by Aon Hewitt
and Alight Solutions, and the court
accepted the recommendation.
According to case documents, Aon
Hewitt was hired by Foundation Resolution
Corp., the plan sponsor of a defined benefit
(DB) plan for hospital employees of Citrus
Memorial Hospital, to provide services
related to termination of the plan, including
administration, actuarial and compliance,
investments, and communications related
to a lump-sum offer.
Judge Finds for Principal
In GIC Lawsuit
A judge for the District Court for the
Southern District of Iowa ruled in favor
of Principal Life Insurance Co. in a
lawsuit alleging it violated the Employee
Retirement Income Security Act (ERISA)
by setting the crediting rate for a guaranteed
investment contract (GIC) such that
the company could " retain unreasonably
large and/or excessive profits. " A GIC is a
stable value investment contract issued by
an insurance company that usually pays
a specified rate of return for a delineated
period of time, guaranteeing principal
and accumulated interest.
The court previously dismissed the
suit, finding that Principal is not a fiduciary
when it sets the composite crediting
rate (CCR) for the GIC and it is also not
a party-in-interest engaging in prohibited
transactions. However, the 8th U.S.
Circuit Court of Appeals reversed that
ruling last February.
The GIC, called the Principal FixedIncome
Option (PFIO), was available
in the retirement plans of the lawsuit
plaintiff and the class members he represented.
" Participants who do not like the
CCR can reject the rate by immediately
withdrawing their funds from the PFIO
at any time and at no cost. A plan sponsor
that does not like the CCR, or that otherwise
wishes to stop offering the PFIO to
its participants, may withdraw all of its
participants' funds from the PFIO in
one of two ways. First, it can withdraw
from the PFIO at no cost after giving
12 months' notice to Principal (the
12-month put). In the alternative, it can
withdraw from the PFIO immediately,
without notice, by paying a charge equal
to 5% of the plan assets allocated to the
PFIO, " the opinion states.
The judge said the evidence demonstrated
that these restrictions benefit
participants by reducing the risk of large,
sudden cash outflows from the PFIO.
He also said, without these restrictions,
Principal could not offer a pooled guaranteed
product with a rate as high and as
stable as the PFIO. -PS
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