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ESOP Administrators Have Duty to Employees, Supreme Court Says

The Supreme Court is looking out for Americans with employee stock ownership plans (ESOPs), a form of retirement plan.


That's what the justices essentially said in their unanimous June 25 decision in Fifth Third v. Dudenhoeffer, in which employees sued because their ESOP administrators invested in a way that caused them to lose money.

In this case, the administrators, or " fiduciaries," had invested the employees' money in the employer's own stock even though they knew (according to the plaintiffs) that the bank was in financial trouble. As a result, the workers lost money.

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The federal appeals court eventually held that the fiduciaries of an ESOP were entitled to a presumption of prudence - in other words, they should be presumed to have acted wisely unless proved otherwise.

But no longer. As AARP Litigation Foundation attorney Mary Ellen Signorille explains: "The Supreme Court's decision was simple: If you are a fiduciary, you have an obligation to make decisions based on the best interests of the participants and beneficiaries, regardless of the investment vehicle."

In other words, ESOP administrators get no special breaks - they have to act just as carefully as administrators of all other kinds of investment plans.

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So what does this mean for you? The good news is that, whatever kind of retirement plan you have, the plan administrator must act prudently with your money. Still, experts say, you'll probably need a rock-solid case to win a lawsuit over a stock-investment program.

Photo: Kjetil Ree via Wikipedia


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