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Fifth Circuit Holds that Offering Single Stock Investments in a 401(k) Plan is Not Per-Se Imprudent

Following a spinoff, a 401(k) plan continued to offer the employer stock fund of the predecessor parent company as an investment alternative, but closed it to new investments. After the share price fell by approximately 50%, the participants brought a lawsuit against the plan fiduciaries claiming, among other things, that the fiduciary breached its duty to diversify under ERISA Section 404(a)(1)(C) by retaining the stock fund as an investment alternative. The District Court dismissed the case and the U.S. Court of Appeals for the Fifth Circuit upheld the dismissal. The Fifth Circuit held that although the stock of the former parent was not statutorily exempt from ERISA’s diversification because it was no longer a “qualifying employer security”, there was no obligation for the plan fiduciaries to force plan participants to divest from the funds. The court explained that ERISA contains no per se prohibition on individual account plans offering single-stock… Continue Reading

Fifth Circuit Adopts the “Narrow View” of Governing Plan Documents

Upon request by a participant or beneficiary, a plan administrator must furnish copies of summary plan descriptions, contracts, etc., and “other instruments under which the plan is established or operated.” Failure to comply with the request may result in a penalty of up to $110 per day. Before this case, the Fifth Circuit had not addressed the scope of the “other instruments” catch-all phrase. Some circuits have interpreted this phrase broadly, although the majority of courts read it narrowly to apply to only “formal legal documents” that govern a plan. In an unpublished opinion, the Fifth Circuit applied the “narrow view” and found that, because the appellants failed to sufficiently plead that the investment guidelines were binding or mandatory with respect to the plans at issue, the investment guidelines were not required to be disclosed. Murphy v. Verizon Commc’ns, Inc., No. 13-11117 (5th Cir. Oct. 14, 2014) (unpublished).

5th Circuit: No Plan Administrator Duty to Investigate Authenticity of Emails Relied Upon in Making Benefit Determination

A plan administrator denied disability benefits to a participant, and sought reimbursement for previously paid benefits, after the administrator concluded that the participant was not in fact disabled.  The administrator’s decision rested in large part on emails provided by the participant’s ex-boyfriend that showed the participant was not disabled.  The participant argued that the administrator abused its discretion in considering the emails without confirming their authenticity.  The U.S. 5th Circuit Court of Appeals, whose jurisdiction includes Texas, held that a plan administrator does not have a duty to reasonably investigate a claim or to investigate the accuracy or source of evidence because the claimant, who is likely in a better position to produce contradictory evidence, should submit evidence discrediting the evidence that the administrator relied upon in making its determination.  Here, the participant argued that email accounts can easily be hacked and/or forged, but produced no evidence that the emails,… Continue Reading

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