No. 12-751 

In the Supreme Court of the United States
 

FIFTH THIRD BANCORP, ET AL., PETITIONERS 

v. 

JOHN DUDENHOEFFER, ET AL. 

ON WRIT OF CERTIORARI 

TO THE UNITED STATES COURT OF APPEALS
 

FOR THE SIXTH CIRCUIT
 

BRIEF FOR THE UNITED STATES
 

AS AMICUS CURIAE SUPPORTING RESPONDENTS
 

DONALD B. VERRILLI, JR. 

Solicitor General
 

Solicitor of Labor
 M. PATRICIA SMITH 

Counsel of Record 

G. W EDWIN S. KNEEDLER ILLIAM SCOTT 

Acting Associate Solicitor Deputy Solicitor General 

ELIZABETH HOPKINS JOHN F. BASH 

Counsel for Appellate and Assistant to the Solicitor 

Special Litigation General 

THOMAS TSO Department of Justice Attorney Washington, D.C. 20530-0001 

Department of Labor SupremeCtBriefs@usdoj.gov 

Washington, D.C. 20210 (202) 514-2217 
 

 

QUESTION PRESENTED 

The Employee Retirement Income Security Act of 

1974, Pub. L. No. 93-406, 88 Stat. 829, imposes duties 

on plan fiduciaries, including a duty to administer the 

plan prudently. 29 U.S.C. 1104(a)(1). The question 

presented is: 

Whether, to state a claim that a fiduciary of an employee stock ownership plan violated the duty of prudence by continuing to invest plan assets in the employer’s stock, a plaintiff must rebut a presumption 

that the fiduciary acted prudently by alleging that the 

employer faced imminent financial peril. 

(I)
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TABLE OF CONTENTS 

Page 

Interest of the United States....................................................... 1
 

Statement ...................................................................................... 1
 

Summary of argument ................................................................. 7
 

Argument:
 

A. The text and purposes of ERISA do not
 

support a nearly insurmountable presumption
 

that an ESOP fiduciary acted prudently 

in continuing to invest plan assets in employer
 

stock.................................................................................... 9
 

1. Fiduciaries of all ERISA plans are subject
 

to the “prudent person” standard of care in
 

making investment decisions .................................... 10
 

2. ESOP fiduciaries are subject to the same
 

standard of prudence as other ERISA
 

fiduciaries and therefore are not entitled to
 

any special presumption that they acted 

prudently..................................................................... 15
 

3. Petitioners’ policy rationales do not justify a 

presumption of prudence........................................... 26
 

4. No reason exists to apply a presumption of
 

prudence at the summary-judgment or trial
 

stages either................................................................ 31
 

B. Respondents stated a claim for breach of 

ERISA’s duty of prudence ............................................. 33
 

Conclusion ................................................................................... 35
 

Statutory appendix ..................................................................... 1a
 

TABLE OF AUTHORITIES 

Cases:
 

Ashcroft v. Iqbal, 556 U.S. 662 (2009).................................. 34
 

Central States, Se. & Sw. Areas Pension Fund v.
 

Central Transp., Inc., 472 U.S. 559 (1985)....................... 12
 

(III) 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IV
 

Cases—Continued: Page
 

Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73 

(1995).................................................................................... 12
 

Fink v. National Sav. & Trust Co., 772 F.2d 951 

(D.C. Cir. 1985) ................................................................... 13
 

Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 

(1989).................................................................................... 25
 

Howell v. Motorola, Inc., 633 F.3d 552 (7th Cir.),
 

cert. denied, 132 S. Ct. 96 (2011) ....................................... 15
 

LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S.
 

248 (2008)............................................................................... 3
 

Martin v. Feilen, 965 F.2d 660 (8th Cir. 1992), cert.
 

denied, 506 U.S. 1054 (1993) .............................................. 32
 

Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S.
 

134 (1985)............................................................................. 10
 

McDonnell Douglas Corp. v. Green, 411 U.S. 792 

(1973).................................................................................... 32
 

Mead Corp. v. Tilley, 490 U.S. 714 (1989)........................... 26
 

Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105 

(2008).................................................................................... 25
 

Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995),
 

cert. denied, 516 U.S. 1115 (1996) ..................................... 17
 

Pension Benefit Guar. Corp. v. Morgan Stanley Inv.
 

Mgmt. Inc., 712 F.3d 705 (2d Cir. 2013) ..................... 13, 14
 

Pfeil v. State St. Bank & Trust Co., 671 F.3d 585 (6th
 

Cir.), cert. denied, 133 S. Ct. 758 (2012) ........................... 31
 

Rinehart v. Akers, 722 F.3d 137 (2d Cir. 2013), petition for cert. pending, No. 13-830 (filed Jan. 8, 2014) ..... 17
 

Smith v. United States, 133 S. Ct. 714 (2013)..................... 32
 

United States Dep’t of Justice v. Landano, 508 U.S.
 

165 (1993)............................................................................. 32
 

Varity Corp. v. Howe, 516 U.S. 489 (1996).................... 10, 11
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

V
 

Statutes, regulations and rules: Page
 

Employee Retirement Income Security Act of 1974,
 

§ 404(a)(1)(A), 88 Stat. 877 (29 U.S.C.
 

Pub. L. No. 93-406, 88 Stat. 829 .......................................... 1
 

1104(a)(1)(A)) ............................................................. 19
 

§ 404(a)(2), 88 Stat. 877 (29 U.S.C. 1104(a)(2))............. 19
 

§ 407(b)(1), 88 Stat. 880 (29 U.S.C. 1107(b)(1))............. 19
 

29 U.S.C. 1001(a) ....................................................... 12, 20
 

29 U.S.C. 1001(b)............................................................... 2
 

29 U.S.C. 1002(13) ............................................................. 1
 

29 U.S.C. 1002(18) ........................................................... 14
 

29 U.S.C. 1002(34) ............................................................. 2
 

29 U.S.C. 1021(i)(2)(C)(i) ............................................... 28
 

29 U.S.C. 1021(i)(7)(B)(i) ............................................... 28
 

29 U.S.C. 1102(a)(1)........................................................... 2
 

29 U.S.C. 1103(a) ............................................................... 2
 

29 U.S.C. 1104................................................ 12, 14, 15, 17
 

29 U.S.C. 1104(a) ............................................................... 2
 

29 U.S.C. 1104(a)(1)......................................................... 28
 

29 U.S.C. 1104(a)(1)(A) ....................................... 19, 21, 24
 

29 U.S.C. 1104(a)(1)(A)(i) ................................................. 8
 

29 U.S.C. 1104(a)(1)(A)(ii) ................................................ 8
 

29 U.S.C. 1104(a)(1)(B) ............................2, 6, 7, 10, 18, 23
 

29 U.S.C. 1104(a)(1)(C) ..................................................... 2
 

29 U.S.C. 1104(a)(1)(D)..............................7, 12, 17, 24, 25
 

29 U.S.C. 1104(a)(2)................................................. 2, 3, 16
 

29 U.S.C. 1104(c)(1)(A) ................................................... 14
 

29 U.S.C. 1106-1108......................................................... 22
 

29 U.S.C. 1106(a) ............................................................... 3
 

29 U.S.C. 1107.................................................................... 3
 

29 U.S.C. 1107(a)(2)........................................................... 3
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

VI
 

Statutes, regulations and rules—Continued: Page
 

29 U.S.C. 1107(b)(1) .......................................................... 3
 

Pension Protection Act of 2006, Pub. L.
 

29 C.F.R.:
 

29 U.S.C. 1107(d)(3)(A)(i) ................................................. 3
 

29 U.S.C. 1107(d)(3)(A)(ii) ................................................ 3
 

29 U.S.C. 1107(d)(5)(A)..................................................... 3
 

29 U.S.C. 1107(d)(6)(A)..................................................... 3
 

29 U.S.C. 1108(e) ............................................................... 3
 

29 U.S.C. 1110(a) ................................................... 7, 12, 17
 

29 U.S.C. 1132(a)(2)........................................................... 2
 

29 U.S.C. 1132(a)(3)........................................................... 2
 

29 U.S.C. 1135.................................................................... 1
 

29 U.S.C. 1136(b)............................................................... 1
 

No. 109-280, 120 Stat. 780 .................................................. 20
 

Private Securities Litigation Reform Act of 1995,
 

Pub. L. No. 104-67 109 Stat. 737 ....................................... 27
 

Tax Reform Act of 1976, Pub. L. No. 94-455,
 

§ 803(h), 90 Stat. 1590 (26 U.S.C. 4975 note) .................. 21
 

Tax Reform Act of 1986, Pub. L. No. 99-514,
 

§ 1175(a)(1), 100 Stat. 2518-2519 ................................ 20, 23
 

26 U.S.C. 401(a)(28)......................................................... 20
 

15 U.S.C. 77q(a) ..................................................................... 28
 

15 U.S.C. 78j(b)...................................................................... 28
 

17 C.F.R. 240.10b-5 ............................................................... 28
 

Section 2509.08-01 ........................................................... 20
 

Section 2550.404c-1 ......................................................... 15
 

Section 2550.407d-6(a)(4).................................................. 4
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

VII
 

Miscellaneous: Page
 

George Gleason Bogert et al.:
 

The Law of Trusts and Trustees (rev. 2d ed. 

1993) ...................................................................... 11, 12
 

The Law of Trusts and Trustees (3d ed. 2000)....... 11, 13
 

Final Regulations Regarding Participant Directed
 

Individual Account Plans (ERISA Section 404(c)
 

Plans) 57 Fed. Reg. (Oct. 13, 1992):
 

p. 46,906............................................................................ 15
 

p. 46,924 ........................................................................... 15
 

H.R. Conf. Rep. No. 1280, 93d Cong.,
 

2d Sess. (1974)................................................... 19, 22, 23, 31
 

H.R. Rep. No. 533, 93d Cong., 1st Sess. (1973) ............ 13, 24
 

Restatement (Second) of Trusts (1959)......................... 11, 13
 

S. Conf. Rep. No. 1236, 94th Cong., 2d Sess. (1976) .......... 22
 

S. Rep. No. 127, 93d Cong., 1st Sess. (1973) ........... 12, 13, 24
 

Austin Wakeman Scott, The Law of Trusts
 

(3d ed. 1967): 

Vol. 2 ........................................................................... 11, 31
 

Vol. 3 ..................................................................... 11, 12, 13
 

Staff of the Senate Special Comm. on Aging,
 

101st Cong., 2d Sess., Developments in Aging:
 

1989 Volume 1 (Comm. Print 1990) .................................. 23
 
 

 

 

 

 

 

In the Supreme Court of the United States
 

No. 12-751
 

FIFTH THIRD BANCORP, ET AL., PETITIONERS
 

v. 

JOHN DUDENHOEFFER, ET AL. 

ON WRIT OF CERTIORARI 

TO THE UNITED STATES COURT OF APPEALS
 

FOR THE SIXTH CIRCUIT
 

BRIEF FOR THE UNITED STATES
 

AS AMICUS CURIAE SUPPORTING RESPONDENTS
 

INTEREST OF THE UNITED STATES
 

This case concerns the scope of a fiduciary duty 

imposed on pension plan fiduciaries by the Employee 

Retirement Income Security Act of 1974 (ERISA), 

Pub. L. No. 93-406, 88 Stat. 829, which the Secretary 

of Labor has primary authority for administering. 29 

U.S.C. 1002(13), 1135, 1136(b). At the Court’s invitation, the United States filed a brief as amicus curiae at 

the petition stage of this case. 

STATEMENT 

1. ERISA is designed to “protect * * * the interests of participants in employee benefit plans and 

their beneficiaries * * * by establishing standards 

of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for 

appropriate remedies, sanctions, and ready access to 

(1) 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

2
 

the Federal courts.” 29 U.S.C. 1001(b). The statute 

requires every plan to be established and maintained 

pursuant to a written instrument and to have named 

fiduciaries who have authority to control and manage 

the administration of the plan and its assets. 29 

U.S.C. 1102(a)(1), 1103(a). 

Fiduciaries of ERISA plans are subject to duties of 

loyalty and care. See 29 U.S.C. 1104(a). The statute 

provides that a fiduciary must “discharge his duties 

with respect to a plan solely in the interest of the 

participants and beneficiaries” of the plan, and “with 

the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting 

in a like capacity and familiar with such matters would 

use in the conduct of an enterprise of a like character 

and with like aims.” 29 U.S.C. 1104(a)(1)(B). In addition, for most ERISA plans, the fiduciary must “diversify[ ] the investments of the plan so as to minimize 

the risk of large losses, unless under the circumstances it is clearly prudent not to do so.” 29 U.S.C. 

1104(a)(1)(C). Plan participants and their beneficiaries may seek judicial redress against a fiduciary for 

violations of the plan or the statute, including breaches of ERISA’s fiduciary duties. 29 U.S.C. 1132(a)(2) 

and (3). 

ERISA sets forth limited exceptions to its statutory duties for fiduciaries who administer “eligible individual account plans.” See 29 U.S.C. 1104(a)(2). An 

individual account plan (more commonly known as a 

“defined-contribution plan”) is “a pension plan which 

provides for an individual account for each participant 

and for benefits based solely upon the amount contributed to the participant’s account, and any income, 

expenses, gains and losses.” 29 U.S.C. 1002(34); see 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3
 

LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S. 

248, 250 n.1 (2008). Such plans often give each participant the discretion to select from a range of investment options chosen by the plan fiduciaries. ERISA 

defines an “eligible” individual account plan to include 

any individual account plan that is a “profit-sharing, 

stock bonus, thrift, or savings plan,” or “an employee 

stock ownership plan [ESOP].” 29 U.S.C. 

1107(d)(3)(A)(i) and (ii). An ESOP is in turn defined 

as an individual account plan that “is designed to invest primarily in qualifying employer securities” and 

meets certain other requirements. 29 U.S.C. 

1107(d)(6)(A). An employer’s common stock is one 

type of “qualifying employer security.” 29 U.S.C. 

1107(d)(5)(A). 

For a plan fiduciary who administers an eligible individual account plan, “the diversification requirement 

* * * and the prudence requirement (only to the 

extent that it requires diversification)” are “not violated by acquisition or holding of * * * qualifying 

employer securities.” 29 U.S.C. 1104(a)(2). In addition, eligible individual account plans are not subject 

to the ordinary requirement that no more than 10% of 

plan assets be invested in employer stock. 29 U.S.C. 

1107(a)(2) and (b)(1). ERISA also exempts such plans 

from rules that would otherwise prohibit a fiduciary 

from purchasing stock for a plan from the employer. 

29 U.S.C. 1106(a), 1107, 1108(e). 

2. Petitioner Fifth Third Bancorp (Fifth Third) is a 

large financial-services company that sponsors an 

individual-account retirement plan for its employees 

called the Fifth Third Bancorp Master Profit Sharing 

Plan (Plan). Under the Plan, employees make voluntary contributions from their earnings, which they can 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4
 

direct into any of various investment options. See Pet. 

App. 30; J.A. 576-577. One of those options is the 

Fifth Third Stock Fund (Fund), an ESOP required to 

be “invested primarily in shares of common stock of 

Fifth Third Bancorp.” J.A. 350.

1 Fifth Third makes 

matching contributions of up to 4% of each employee’s 

pre-tax compensation. J.A. 349, 574-577. Participants 

may then transfer those contributions to another 

investment option. J.A. 576. 

The Plan generally grants Fifth Third’s Pension 

and Profit Sharing Committee, whose members are 

made up of company officials and employees, “the 

discretionary authority and fiduciary duty to determine the investment funds to be made available” to 

participants, but provides that “in all events, the Fifth 

Third Stock Fund * * * shall be an investment 

option.” J.A. 289, 735. The Plan requires the Committee to “monitor[] [the] investment funds to determine the continued prudence of offering such funds” 

and to “change the investment funds available if and 

when it deems it prudent to do so.” J.A. 735. 

Respondents, two former participants in the Plan, 

filed putative class actions against Fifth Third, its 

Chief Executive Officer, the Committee, and other 

individual Fifth Third officers who allegedly acted as 

fiduciaries of the Plan. J.A. 24-30. Respondents sued 

on behalf of all participants whose plan accounts were 

invested in Fifth Third stock between July 19, 2007 

and September 21, 2009. J.A. 15, 19-20. According to 

the complaint, petitioners knew or should have known 

1 Under Department of Labor regulations, “[a]n ESOP may form 

a portion of a plan the balance of which includes a qualified pension, profit-sharing, or stock bonus plan which is not an ESOP.” 29 

C.F.R. 2550.407d-6(a)(4). 
 

 

 

 

 

 

5
 

that the company’s stock was excessively risky because of the company’s exposure to high-risk subprime mortgages and that its price was artificially 

inflated because the company’s financial statements 

were inaccurate. J.A. 98. Noting that the price of 

Fifth Third stock had declined by 74% following public 

disclosure of the company’s actual financial condition, 

respondents attributed a loss of tens of millions of 

dollars in the value of the Plan to petitioners’ alleged 

failure “to protect the Plan and its participants and 

beneficiaries from the risks of the Company’s reckless 

and improper conduct.” J.A. 37. 

Respondents alleged that petitioners breached 

ERISA’s duty of prudence by continuing to offer the 

Fund as an investment option and to invest plan assets in the Fund, and by failing to divest plan assets 

from the Fund. J.A. 104. They also alleged that petitioners “breached their duties of loyalty and prudence 

by failing to provide complete and accurate information to Plan participants and beneficiaries” about 

the company’s financial condition. Ibid. Because of 

that, the complaint continued, “participants in the 

Plan could not appreciate the true risks presented by 

investments in the Company’s stock and therefore 

could not make informed decisions regarding their 

investments in the Plan.” J.A. 105. 

3. The district court granted petitioners’ motion to 

dismiss the complaint for failure to state a claim upon 

which relief could be granted. Pet. App. 28-52. The 

court believed that it was required to presume at the 

motion-to-dismiss stage that petitioners’ decision to 

continue investing in Fifth Third stock was prudent 

and that respondents could rebut that presumption 

only by plausibly alleging that Fifth Third had been in 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2 

6
 

a “dire financial predicament” during the relevant 

period. Id. at 39-45. The court concluded that respondents’ allegations did not meet that standard 

because “Fifth Third remained a viable company 

throughout the [relevant] period.” Id. at 45. 

4. The court of appeals reversed. Pet. App. 1-25. 

It explained that, under circuit precedent, “[a] fiduciary’s decision to remain invested in employer securities is presumed to be reasonable.” Id. at 10-11 (citation omitted). But it held that the “presumption is not 

a[] * * * pleading requirement” and therefore 

does not apply at the motion-to-dismiss stage. Id. at 

11-12. The court went on to explain that to rebut the 

presumption where it applies, a plaintiff must “prove 

that a prudent fiduciary acting under similar circumstances would have made a different investment decision.” Id. at 12 (citation and internal quotation marks 

omitted). That “unembellished standard,” the court 

held, “closely tracks the statutory language of [29 

U.S.C. 1104(a)(1)(B)],” which “imposes identical 

standards of prudence and loyalty on all fiduciaries, 

including ESOP fiduciaries.” Pet. App. 12-13. 

The court of appeals concluded that respondents’ 

allegations that petitioners knew that Fifth Third 

stock was an imprudent investment but continued to 

invest plan assets in the Fund were sufficient to state 

a claim. Pet. App. 15.2 

In December 2013, the Securities and Exchange Commission 

instituted administrative proceedings against Fifth Third relating 

to the company’s “failure to record substantial losses during the 

[2008] financial crisis by not properly accounting for a portion of 

its commercial real estate loan portfolio.” In re Fifth Third Bancorp. 2 (Dec. 4, 2013), http://www.sec.gov/litigation/admin/2013/33-
 

 

 

 

 

 

 

 

 

 

 

 

 

 

7 

SUMMARY OF ARGUMENT 

A. ERISA does not require a court to conclusively 

presume that, absent “rare and extraordinary circumstances” (Pet. Br. 34), an ESOP fiduciary acted prudently in continuing to invest plan assets in employer 

stock. Rather, the same basic standard of prudence 

that protects all ERISA plans governs ESOP fiduciaries. 

1. ERISA incorporates the “prudent person” 

standard from trust law. 29 U.S.C. 1104(a)(1)(B). 

Under that standard, a fiduciary in charge of a plan’s 

investment decisions must conduct an adequate investigation of investment options and make reasonable 

choices based on that investigation. ERISA departs 

from trust law, however, in that an employer may not 

dispense with the duty of prudence by requiring the 

plan to make imprudent investments. 29 U.S.C. 

1104(a)(1)(D), 1110(a). The prudent-person standard 

for investment decisions applies to all ERISA plans, 

including defined-contribution plans in which the 

fiduciary selects a menu of investment options (such 

as an ESOP) for participants. 

2. No textual basis exists to depart from ERISA’s 

prudent-person standard for an ESOP by presuming 

that its fiduciary’s investment decisions are prudent 

absent “rare and extraordinary circumstances,” such 

as the “impending collapse” of the employer. Pet. Br. 

24, 34. Although ERISA exempts ESOP fiduciaries 

from the duty to diversify plan investments, the statute expressly preserves the basic duty of prudence in 

all other respects. Petitioners have pointed to nothing 

in the text of ERISA, its trust-law underpinnings, or 

9490.pdf. As part of a settlement of that matter, Fifth Third 

agreed to pay a civil penalty of $6.5 million. See id. at 1-2, 10. 
 

 

 

 

 

 

 

 

8
 

its foundational purpose of providing security for 

retirement benefits that supports a virtually insurmountable presumption that an ESOP fiduciary acted 

prudently in continuing to invest plan assets in employer stock, even if the fiduciary knew or should have 

known that the stock was materially overvalued due to 

the misconduct of corporate officers. Although the 

duty of prudence looks to how a reasonable fiduciary 

would manage a plan with “like aims,” ERISA provides that an ESOP, like any other plan, must be administered with the “exclusive purpose” of “providing 

benefits to participants and their beneficiaries” (and 

defraying administrative expenses). 29 U.S.C. 

1104(a)(1)(A)(i) and (ii). That statutory mandate does 

not permit a fiduciary to subordinate the interest in 

protecting the value of employees’ retirement savings 

to other interests, such as raising capital for the company and building employee ownership in it. 

3. Petitioners’ policy arguments do not support a 

judicially created presumption of prudence that lacks 

support in ERISA’s text. A presumption is not necessary to protect fiduciaries from liability for mere 

drops in stock price. If that is all that is alleged, a 

claim should ordinarily be dismissed. Any further 

concern about unduly burdensome class-action litigation should be addressed by Congress. Nor is a presumption of prudence required to avoid a conflict with 

the securities laws. Although an ESOP fiduciary who 

is also a corporate officer with material inside information may have a more limited range of options to 

ensure compliance with her ERISA duties, she always 

has the option of ceasing purchases or disclosing information to the market that would prevent the stock 

price from being artificially inflated. Any conflict, 
 

 

 

 

 

 

 

 

 

 

 

 

 

9
 

moreover, can be avoided by appointing an independent entity, such as a financial institution, as the investment fiduciary of the ESOP. 

4. The court of appeals erred in imposing a presumption of prudence at the factfinding stage. Particularly given that plaintiffs already bear the burden of 

proof and that plan fiduciaries have better access to 

information about the investigation they undertook 

and what they knew about the value of the employer’s 

stock, it would be anomalous and inequitable to impose a heightened burden of proof in this context. 

B. Respondents’ complaint stated a claim for 

breach of the duty of prudence. Respondents plausibly alleged that petitioners knew, or would have 

known had they undertaken an adequate investigation, that Fifth Third stock was materially overvalued 

because of the bank’s public misrepresentations about 

its mortgage portfolio and financial health, but continued to invest employees’ retirement savings in the 

Fund and to offer it as an investment option. 

ARGUMENT 

A. The Text And Purposes Of ERISA Do Not Support A 

Nearly Insurmountable Presumption That An ESOP 

Fiduciary Acted Prudently In Continuing To Invest 

Plan Assets In Employer Stock 

Petitioners contend that to succeed on a claim that 

an ESOP fiduciary acted imprudently in continuing to 

make an ESOP available as an investment option and 

to invest plan assets in employer stock, a plaintiff 

must overcome a “presumption of prudence” by plausibly pleading that “rare and extraordinary circumstances” existed during the challenged period of investment, “such as a serious threat to the employer’s 

viability.” Pet. Br. 16, 34. That standard has no basis 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

10
 

in ERISA’s text, purposes, or trust-law underpinnings 

and should be rejected.

3 

1.	 Fiduciaries of all ERISA plans are subject to the 

“prudent person” standard of care in making 

investment decisions 

a. ERISA imposes a duty of prudence on all plan 

fiduciaries. The statute provides that a “fiduciary 

shall discharge his duties with respect to a plan solely 

in the interest of the participants and beneficiaries 

and—(A) for the exclusive purpose of * * * 

providing benefits to participants and their beneficiaries * * * ; [and] (B) with the care, skill, prudence, 

and diligence under the circumstances then prevailing 

that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an 

enterprise of a like character and with like aims.” 29 

U.S.C. 1104(a)(1)(B). Those standards govern “fiduciaries’ investment decisions and disposition of assets.” 

Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 

134, 143 n.10 (1985). 

Congress modeled ERISA’s duty of prudence on 

the “prudent man” standard developed in the common 

law of trusts, see Varity Corp. v. Howe, 516 U.S. 489, 

497 (1996), which in similar terms provides that “[i]n 

his management of the trust, the trustee is required to 

3 In its invitation brief, the United States explained that petitioners’ question presented “is closely bound up with the question 

whether a presumption of prudence applies at all, and that question is logically antecedent to any questions concerning when such 

a presumption applies and what is necessary to rebut it.” U.S. Br. 

19. Although the Court declined the government’s suggestion to 

reformulate the question “[t]o ensure adequate briefing” on that 

preliminary issue, ibid., petitioners have thoroughly addressed it. 

See Pet. Br. 21-44 & n.7. 
 

 

 

 

 

 

 

 

 

 

 

11
 

manifest the care, skill, prudence, and diligence of an 

ordinarily prudent man engaged in similar business 

affairs and with objectives similar to those of the trust 

in question.” George Gleason Bogert et al., The Law 

of Trusts and Trustees § 541, at 167 (rev. 2d ed. 1993) 

(Bogert (2d ed.)); see Restatement (Second) of Trusts 

§ 174, at 379 (1959); 2 Austin Wakeman Scott, The 

Law of Trusts § 174, at 1408 (3d ed. 1967) (Scott). At 

common law, the prudent-person standard imposed 

particular requirements on a trustee’s investment 

decisions. See Restatement § 227(a), at 529; 3 Scott 

§ 227, at 1805-1806. The principal obligation of the 

trustee was to “make[] an investigation as to the safety of [an] investment and the probable income to be 

derived therefrom,” and then to make a reasonable 

investment decision based on that investigation. Restatement § 227 cmt. b, at 530. In addition, “a reasonably prudent trustee always would have considered 

diversifying his investments.” George Gleason Bogert 

et al., The Law of Trusts & Trustees § 612, at 22 (3d 

ed. 2000) (Bogert (3d ed.)). The trustee also had an 

ongoing duty to monitor investments in the trust portfolio, and “if a particular asset in the trust portfolio 

[became] improper as a trust investment,” the trustee 

was required to “act promptly to sell or convert the 

asset to avoid or minimize the risk of loss and personal 

liability.” Id. § 612, at 19. 

By incorporating the common-law standard into 

ERISA, Congress intended those basic requirements 

to apply to ERISA fiduciaries. But as this Court has 

observed, Congress also “expect[ed] that the courts 

w[ould] interpret th[e] prudent man rule * * * 

bearing in mind the special nature and purpose of 

employee benefit plans.” Varity Corp., 516 U.S. at 497 
 

 

 

 

 

 

 

 

 

 

12
 

(first set of brackets in original). Accordingly, courts 

applying the duty of prudence in specific cases must 

take into account that ERISA plans are retirementsavings programs that are vital to “the continued wellbeing and security of millions of employees and their 

dependents.” 29 U.S.C. 1001(a). 

ERISA’s duty of prudence operates differently 

from the trust-law duty of prudence in at least one 

significant respect. Under the common law, it was 

“generally recognized that the settlor can reduce or 

waive the prudent man standard of care by specific 

language in the trust instrument.” Bogert (2d ed.) 

§ 541, at 172; see id. § 542, at 187; 3 Scott § 227.14, at 

1845-1848. But as this Court has explained, “trust 

documents cannot excuse trustees from their duties 

under ERISA.” Central States, Se. & Sw. Areas Pension Fund v. Central Transp., Inc., 472 U.S. 559, 568 

(1985); cf. Curtiss-Wright Corp. v. Schoonejongen, 514 

U.S. 73, 82 (1995). ERISA provides that a fiduciary is 

required to follow plan terms only “insofar as [plan] 

documents and instruments are consistent” with the 

other provisions of the statute, including its fiduciary 

duties. 29 U.S.C. 1104(a)(1)(D). Furthermore, “any 

provision in an agreement or instrument which purports to relieve a fiduciary from responsibility or 

liability for any * * * [fiduciary] duty” is “void 

as against public policy.” 29 U.S.C. 1110(a). 

ERISA fiduciaries, therefore, must follow plan 

terms, including investment guidelines, only if they 

are not “inconsistent with the fiduciary principles of 

[Section 1104].” S. Rep. No. 127, 93d Cong., 1st Sess. 

30 (1973) (Senate Report). Indeed, Congress included 

express fiduciary duties in the statute itself in part 

because “the trust law in many states [had been] in-
 

 

 

 

 

 

 

 

 

13
 

terpreted” to relieve a fiduciary from liability for 

investment decisions “if the settlor specifie[d] that the 

trustee shall be allowed to make investments which 

might otherwise be considered imprudent.” Id. at 29; 

see also H.R. Rep. No. 533, 93d Cong., 1st Sess. 12 

(1973) (House Report) (same). 

b. At common law, a court reviewing a trustee’s investment decisions “endeavor[ed] to place itself in the 

position of the trustee at the time he made the investment and not to charge him with knowledge of 

what has happened since the investment.” Bogert (3d 

ed.) § 612, at 60; see 3 Scott § 227, at 1807. The court 

would consider whether the trustee complied with his 

obligations “to investigate and evaluate investments, 

and to invest prudently.” Fink v. National Sav. & 

Trust Co., 772 F.2d 951, 962 (D.C. Cir. 1985) (Scalia, 

J., concurring in part and dissenting in part). In the 

typical case, “the extent of the trustee’s investigation 

and evaluation [was] * * * the focus of inquiry,” 

because “the determination of whether an investment 

was objectively imprudent [was] made on the basis of 

what the trustee knew or should have known; and the 

latter necessarily involve[d] consideration of what 

facts would have come to his attention if he had fully 

complied with his duty to investigate and evaluate.” 

Ibid.; see Restatement § 227 cmt. b; 3 Scott § 227.1, 

at 1809. 

In the ERISA context, therefore, to state a claim 

based on losses resulting from imprudent plan investments, a plaintiff typically must plausibly allege 

facts showing that the fiduciaries knew that an investment was imprudent or would have known that it 

was imprudent if they had undertaken an adequate 

investigation. See Pension Benefit Guar. Corp. v. 
 

 

 

 

 

 

 

 

 

 

 

 

14
 

Morgan Stanley Inv. Mgmt. Inc., 712 F.3d 705, 718 

(2d Cir. 2013). Absent such allegations, a plaintiff 

generally will not be able to state a claim for breach of 

the duty of prudence based on the fiduciaries’ investment decisions and offering of investment options, 

even if the investments turned out to be unprofitable. 

See id. at 716. Thus, when a plaintiff suing an ERISA 

fiduciary for breach of the duty of prudence alleges 

only that a publicly traded security was experiencing a 

decline in price at the time that the fiduciary bought it 

for the plan, a court should ordinarily dismiss the 

claim on the pleadings. See id. at 722; cf. 29 U.S.C. 

1002(18) (providing that “‘adequate consideration’ 

* * * in the case of a security for which there is a 

generally recognized market” is the price at which 

that security is trading). We would expect that to be 

particularly so with respect to investment in employer 

securities under an ESOP, because the exemption 

from ERISA’s diversification requirement (and the 

toleration of greater risk as a result) means that a 

fiduciary may maintain or increase plan investments 

in employer stock even during a volatile period if the 

fiduciary does not know or have reason to know that 

the market price materially overstates the stock’s 

value. 

c. The prudent-person standard in Section 1104 

applies to defined-contribution plans as well as defined-benefit plans. Some defined-contribution plans 

give participants discretion in choosing investments, 

and Section 1104(c)(1)(A) exempts fiduciaries of such 

plans from liability for investment-related losses 

caused by participant choices. But even for such a 
 

 

 

 

 

 

 

 

4 

15
 

“Section 404(c) plan,” 4 the Secretary has established 

in notice-and-comment rulemaking that the “act of 

limiting or designating investment options which are 

intended to constitute all or part of the investment 

universe of an ERISA 404(c) plan is a fiduciary function.” Final Regulation Regarding Participant Directed Individual Account Plans (ERISA Section 

404(c) Plans), 57 Fed. Reg. 46,906, 46,924 n.27 (1992). 

Accordingly, “the plan fiduciary has a fiduciary obligation to prudently select such vehicles, as well as a 

residual fiduciary obligation to periodically evaluate 

the performance of such vehicles to determine, based 

on that evaluation, whether the vehicles should continue to be available as participant investment options.” Id. at 46,924 n.27. That interpretation of the 

statute is reasonable and therefore entitled to deference. See Howell v. Motorola, Inc., 633 F.3d 552, 567 

(7th Cir.), cert. denied, 132 S. Ct. 96 (2011). 

2.	 ESOP fiduciaries are subject to the same standard 

of prudence as other ERISA fiduciaries and 

therefore are not entitled to any special 

presumption that they acted prudently 

ERISA’s text and purposes do not support the virtually insurmountable presumption, urged by petitioners, that an ESOP fiduciary acted prudently in 

continuing to invest plan assets in the employer’s 

stock or to offer it as an investment option. 

a. The same prudent-person standard applicable to 

fiduciaries of ERISA plans generally applies to fiduciaries of ESOPs. Section 1104 sets forth specific exIt is not clear from the record whether the plan at issue here 

meets the requirements of a Section 404(c) plan. See 29 C.F.R. 

2550.404c-1. 
 

 

 

 

 

 

 

 

 

 

 

 

16
 

emptions for fiduciaries of eligible individual account 

plans, including ESOPs, but does not exempt them 

from the basic duty of prudence: “In the case of an 

eligible individual account plan * * * , the diversification requirement of paragraph (1)(C) and the 

prudence requirement (only to the extent that it requires diversification) of paragraph (1)(B) is not violated by acquisition or holding of * * * qualifying 

employer securities.” 29 U.S.C. 1104(a)(2) (emphasis 

added). 

The straightforward meaning of that provision is 

that the same basic duty of prudence applicable to 

ERISA plans generally governs the investment choices of fiduciaries of ESOPs and other eligible individual 

account plans. The exemptions relieve those fiduciaries only of the specific requirement that a plan’s investment portfolio be sufficiently diversified to minimize risk. By otherwise preserving the duty of prudence for ESOPs, Congress clearly expressed its 

intent that the same general standard of prudence is 

to govern ESOP fiduciaries as other ERISA fiduciaries. That standard does not permit courts to apply 

any special presumption that an ESOP fiduciary acted 

prudently, much less a standard of review that shields 

a fiduciary from liability so long as the employer did 

not face “rare and extraordinary circumstances” on 

the level of “a collapse [that] would leave employees 

with no meaningful ownership interest in their employer.” Pet. Br. 16-17, 34. 

The courts of appeals that have adopted such a 

presumption of prudence appear to have viewed any 

allegation that an ESOP fiduciary acted imprudently 

by continuing to invest in employer stock as logically 

indistinguishable from a claim that the fiduciary failed 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

17
 

to diversify plan assets. See Pet. Br. 7 (discussing 

Moench v. Robertson, 62 F.3d 553, 570 (3d Cir. 1995), 

cert. denied, 516 U.S. 1115 (1996)). That view is mistaken. The diversification exemption merely absolves 

ESOP fiduciaries from the ordinary obligation to 

reduce risk by spreading plan assets among multiple 

prudent investments. It does not permit them to 

concentrate plan assets in an imprudent investment, 

such as employer securities the fiduciary knows or 

should know are materially overvalued. 

Some courts of appeals have also thought a presumption of prudence is warranted to resolve a perceived tension between a plan’s requirement that the 

fiduciary invest plan assets in employer stock and 

ERISA’s duty to invest plan assets prudently. See 

Pet. Br. 8 (citing Moench, 62 F.3d at 571-572). ERISA 

itself, however, resolves any such tension. As discussed above (see pp. 12-13, supra), a fiduciary is 

required to follow the terms of the plan only if it is 

consistent with Section 1104’s fiduciary duties. 29 

U.S.C. 1104(a)(1)(D). Just as a plan could not authorize a fiduciary to violate the statutory duty of loyalty, 

a plan cannot relax the duty of prudence. 29 U.S.C. 

1110(a). Although that limitation represents a departure from the common law of trusts, it reflects 

ERISA’s special protection for the security of employees’ promised retirement benefits. 

ERISA thus obligates the fiduciary of a plan that 

includes an ESOP option to depart from the plan’s 

requirements if the initial investment options are no 

longer prudent. In fact, some ESOPs make that requirement explicit by requiring continued investment 

in employer stock only in conformity with ERISA’s 

fiduciary duties. See Rinehart v. Akers, 722 F.3d 137, 
 

 

 

 

 

 

 

 

18
 

145 (2d Cir. 2013) (discussing plan giving fiduciary 

power “to eliminate or curtail investments in [employer] [s]tock . . . if and to the extent that the [fiduciary] determines that such action is required in order 

to comply with the fiduciary duties rules” of ERISA), 

petition for cert. pending, No. 13-830 (filed Jan. 8, 

2014) (citation omitted); cf. J.A. 387 (providing that 

Fifth Third’s Committee must follow plan terms only 

“insofar as such documents and instruments are consistent with the provisions of title I of ERISA”). 

Accordingly, ERISA does not place ESOP fiduciaries in an “untenable position” (Pet. Br. 40) in deciding 

whether to follow a plan requirement to continue 

investing in employer stock. The duty of any ESOP 

fiduciary is to continue investing only if it is prudent 

to do so. As explained above, that standard assures 

fiduciaries wide latitude to make reasonable determinations in conditions of market uncertainty. For that 

reason, fiduciaries’ decisions to continue investment in 

employer securities that have been declining in price, 

made after an adequate investigation into the soundness of the investment, should almost uniformly be 

upheld. See pp. 13-14, supra. But the prudent-person 

standard does not shield fiduciaries from liability 

when they knew, or would have known had they undertaken an adequate investigation, that the employer 

stock was materially overvalued. 

b. Petitioners also contend (Br. 25-34) that a “robust presumption of prudence” that can be overcome 

only in “rare and extraordinary circumstances” follows from the statutory requirement that a fiduciary 

exercise the level of care that a prudent person would 

exercise for “an enterprise of a like character and with 

like aims,” 29 U.S.C. 1104(a)(1)(B). That language, 
 

 

 

 

 

 

 

 

 

 

 

 

 

19
 

however, does not support the virtually insurmountable barrier to relief that petitioners propose. The 

premise of petitioners’ argument—that the exclusive 

“purpose of an ESOP is to foster employee ownership 

through investment in employer securities” (Br. 30), 

irrespective of whether those securities are materially 

overvalued—is fundamentally mistaken. Rather, 

ERISA makes clear that the exclusive “aim” of an 

ESOP, as of any pension plan, is to provide employee 

retirement benefits. 

i. Like any other ERISA pension plan, an ESOP is 

a vehicle for retirement savings. That is clear on the 

face of the statute. As originally enacted, ERISA 

included the targeted exemptions from diversification 

requirements designed to enable employers to set up 

ESOPs. See ERISA §§ 404(a)(2), 407(b)(1), 88 Stat. 

877, 880. Yet Congress did not see fit to exempt 

ESOPs from the requirement that fiduciaries administer plans “for the exclusive purpose of[] (i) providing 

benefits to participants and their beneficiaries; and 

(ii) defraying reasonable expenses of administering 

the plan.” 29 U.S.C. 1104(a)(1)(A) (emphasis added); 

see ERISA § 404(a)(1)(A), 88 Stat. 877; see also H.R. 

Conf. Rep. No. 1280, 93d Cong., 2d Sess. 302-303 

(1974) (Conference Report). The statute nowhere 

permits an ESOP fiduciary to manage a plan with the 

objective of advancing any other goal, such as raising 

capital for the company and building employee equity 

in it. 

It would therefore be at odds with the statutory 

text to elevate an unwritten objective of “foster[ing] 

employee ownership” (Pet. Br. 30) over ERISA’s 

explicit command to operate plans with the exclusive 

goal of safeguarding retirement benefits—a goal that 
 

 

 

 

 

 

 

 

 

 

 

20
 

advances Congress’s overarching purpose of ensuring 

“the continued well-being and security of millions of 

employees and their dependents.” 29 U.S.C. 1001(a). 

As the Secretary has explained in interpretive guidance, “fiduciaries may never subordinate the economic 

interests of the plan to unrelated objectives, and may 

not select investments on the basis of any factor outside the economic interest of the plan except in [specified] circumstances.” 29 C.F.R. 2509.08-01. 

Congress, moreover, has taken steps since the 

enactment of ERISA to improve the reliability of 

ESOPs as retirement vehicles. In the Tax Reform Act 

of 1986, Pub. L. No. 99-514, § 1175(a)(1), 100 Stat. 

2518-2519, Congress required employers to allow the 

partial diversification of ESOPs for older workers to 

protect their retirement savings. See 26 U.S.C. 

401(a)(28). And as petitioners acknowledge only in a 

footnote, the Pension Protection Act of 2006, Pub. L. 

No. 109-280, 120 Stat. 780, “requires certain [ESOPs] 

to provide participants with the right to diversify their 

investments.” Pet. Br. 36 n.14. Those statutory provisions reflect Congress’s continued understanding 

that an ESOP, like any ERISA plan, serves primarily 

as a retirement-savings vehicle. 

Some believe that by building employee equity in a 

company, ESOPs give employees a sense of ownership 

in their employer, which may have salutary effects on 

the efficiency and cohesiveness of the workforce. See 

ESOP Ass’n Amicus Br. 24. And by encouraging 

employees to invest their earnings in the company, 

ESOPs help employers raise capital. See Chamber of 

Commerce Amicus Br. 6. But Congress sought to 

advance those objectives through the ESOP-specific 

exemptions set forth in the text of the statute, as well 
 

 

 

 

 

 

 

 

 

 

 

 

21
 

as certain tax benefits to facilitate the formation of 

ESOPs. Congress did not permit fiduciaries appointed to administer ESOPs, once they are established, to 

make investment decisions on the basis of the fiduciaries’ perception or assessment of such generalized 

policy considerations. Instead, Congress applied to 

ESOPs, as to other plans, the requirement that the 

plan be administered for the “exclusive purpose” of 

“providing benefits to participants and their beneficiaries” and defraying administrative expenses. 29 

U.S.C. 1104(a)(1)(A). An investment decision that 

subordinates that interest to other goals violates the 

duties of both prudence and loyalty. 

ii. No other provision of ERISA supports petitioners’ view that a fiduciary must administer an ESOP 

with the principal aim of raising capital for and building employee ownership in their company without 

regard to the effect of that investment on their retirement savings. Petitioners principally rely (Br. 6, 

18, 21, 26, 38, 40) on a mere expression of congressional intent in a subsection of a complex tax statute 

enacted two years after ERISA in which Congress 

cautioned against “regulations and rulings which treat 

employee stock ownership plans as conventional retirement plans.” Tax Reform Act of 1976, Pub. L. No. 

94-455, § 803(h), 90 Stat. 1583, 1590 (reprinted at 26 

U.S.C. 4975 note). The cited subsection does not suggest that a fiduciary administering an ESOP may 

subordinate the statutory objective of providing retirement benefits to the goal of building employee 

ownership in the company (much less do so at all 

costs), nor does it discuss the proper interpretation 

and enforcement of ERISA’s fiduciary duties more 

generally. The expression of intent was instead di-
 

 

 

 

 

 

 

 

22
 

rected at specific provisions of proposed regulations 

relating to ESOP loans, stock options, voting rights, 

and the like, which were perceived to be too onerous. 

See S. Conf. Rep. No. 1236, 94th Cong., 2d Sess. 539, 

542 (1976). Indeed, the Conference Report cautioned 

that no inference about Congress’s intent should be 

drawn even with respect to provisions of the proposed 

regulations, if they were not commented upon. Id. at 

542. The 1976 statute manifestly does not suggest 

that Congress intended to disapprove of the application to ESOPs of the basic statutory duty of prudence. 

Petitioners also advert (Br. 36) to Internal Revenue Code provisions favoring ESOPs. ESOPs’ taxfavored treatment, however, only underscores the 

importance of steadfastly enforcing the duty of prudence that Congress did not see fit to relax for 

ESOPs. Congress surely did not intend to provide tax 

benefits to plans that invest their employees’ retirement savings in securities that are materially overpriced as a result of market misrepresentations. 

Other citations in petitioners’ brief are similarly 

inapposite. Petitioners take out of context a sentence 

fragment from ERISA’s Conference Report discussing an exemption from ERISA’s prohibitedtransactions provisions (see 29 U.S.C. 1106-1108) for 

loans to a subclass of ESOPs (“leveraged” ESOPs). 

The passage states only that a frequent characteristic 

of such plans is that they are “designed to build equity 

ownership of shares of the employer corporation for 

its employees in a nondiscriminatory manner.” 

Conference Report 313 (emphasis added) (quoted in 

part at Pet. Br. 26). The Conference Committee 

stressed the narrow scope of the exception and the 

need for “special scrutiny” to ensure that the transac-
 

 

 

 

 

 

23
 

tions are primarily for the benefit of plan participants 

and beneficiaries, ibid., and hence did not suggest that 

the basic rule of prudence does not apply to ESOPs. 

Petitioners also cite (Br. 27) a special report of a Senate subcommittee published sixteen years after 

ERISA was enacted and that did not accompany any 

legislation. See Staff of the Senate Special Comm. on 

Aging, 101st Cong., 2d Sess., Developments in Aging: 

1989 Volume 1, at 94-96 (Comm. Print 1990). The 

short discussion of ESOPs in that report explained 

only that the Tax Reform Act of 1986 required employers to allow the partial diversification of ESOPs 

for older workers to protect their retirement savings. 

Aside from those sources, petitioners rely (Br. 27, 

38 n.15) on a committee staff report issued six years 

after ERISA’s enactment indicating that an ESOP is 

not “primarily” a retirement vehicle, and a Senator’s 

1983 floor statement introducing a bill that was never 

enacted. It is telling that these scattered statements 

over the decades since ERISA’s enactment are all 

petitioners have been able to muster for the view that, 

notwithstanding the explicit text of ERISA itself, 

Congress intended courts to apply a virtually insurmountable presumption of prudence for ESOP fiduciaries. 

iii. Accordingly, in determining whether a fiduciary 

administered an ESOP in the way that a prudent 

person would manage “an enterprise of a like character and with like aims,” 29 U.S.C. 1104(a)(1)(B), a 

court must consider how a prudent person would operate a fund that, although exempt from strict diversification requirements if invested in employer securities, nevertheless has the “exclusive purpose” of 

providing retirement benefits to participants (and 
 

 

 

 

 

 

 

 

 

 

 

 

 

24
 

defraying administrative expenses), 29 U.S.C. 

1104(a)(1)(A). A prudent person administering such a 

fund would not continue to make investments in assets 

she knows, or should know, are materially overpriced. 

Petitioners are therefore wrong in arguing that the 

prudent-person standard requires a court to countenance continued investment in artificially inflated 

employer stock (with the resulting diminishment in 

the value of employees’ retirement savings) so long as 

the company was not on the brink of collapse. 

c. Petitioners point (Br. 30-34) to the “deviation 

doctrine” in the common law of trusts. As described 

by petitioners, that doctrine requires a trustee to 

follow the terms of the trust “unless compliance is 

impossible or illegal or there has been such a change 

of circumstances that compliance would defeat or 

substantially impair the accomplishment of the trust 

purposes.” Id. at 32 (citation and internal quotation 

marks omitted). But as discussed above, see pp. 12-

13, supra, Congress directed that ERISA’s fiduciary 

duties trump contrary plan terms, 29 U.S.C. 

1104(a)(1)(D), specifically to address the problem that 

“the trust law in many states” had shielded trustees 

from liability for investment decisions “if the settlor 

specifie[d] that the trustee shall be allowed to make 

investments which might otherwise be considered 

imprudent.” Senate Report 29; see House Report 12 

(same). The incorporation of the “deviation doctrine” 

into ERISA in the way petitioners urge would effectively overturn Congress’s deliberate decision to depart from trust law in that respect. Indeed, petitioners’ line of reasoning would support a nearly irrebuttable presumption of prudence not only for ESOPs, 

but for any plan specifying that certain investment 
 

 

 

 

 

 

 

 

 

 

 

25
 

funds will be offered to plan participants, regardless 

of whether those options are prudent or sufficiently 

diversified. That plainly is not what Congress envisioned when it enacted Section 1104(a)(1)(D). And in 

fact, the deviation doctrine, as set forth in the passage 

quoted by petitioners above, requires a trustee to 

follow the terms of the trust “unless compliance is 

* * * illegal” (Pet. Br. 32); here Section 

1104(a)(1)(D) renders it illegal for a fiduciary to follow 

the terms of the plan if it would be imprudent to do so. 

d. Petitioners also try to draw an analogy between 

the presumption of prudence and the abuse-ofdiscretion standard that courts apply in reviewing 

individual benefit determinations by plan fiduciaries 

who have been vested with discretion to decide claims 

or to interpret the terms of a plan. See Pet. Br. 41-42 

(citing Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 

101, 111 (1989)); see Metropolitan Life Ins. Co. v. 

Glenn, 554 U.S. 105, 111 (2008). That analogy is inapt, 

because the abuse-of-discretion standard does not 

pose the virtually insurmountable hurdle to recovery 

that petitioners urge. But more fundamentally, this 

Court developed the abuse-of-discretion standard 

because “ERISA does not set out the appropriate 

standard of review for actions * * * challenging 

benefit eligibility determinations.” Firestone Tire & 

Rubber Co., 489 U.S. at 109. In contrast, Congress 

has expressly prescribed the standard to be applied to 

claims of fiduciary mismanagement: the prudentperson standard. That standard does not demand 

“rare and extraordinary circumstances” before an 

investment can be deemed imprudent. 

e. Finally, petitioners emphasize (Br. 22-23, 35) 

that a presumption of prudence was first articulated 
 

 

 

 

 

 

 

 

 

 

 

26
 

by the Third Circuit in 1995 and has recently been 

adopted by five other courts of appeals. The Department of Labor, however, has consistently taken the 

position that “fiduciaries are obligated to follow plan 

terms[] requiring investment in employer stock only 

to the extent that doing so is otherwise consistent with 

fiduciary duties” and has opposed the sort of preclusive presumption that petitioners favor. Secretary of 

Labor Amicus Br., 2006 WL 5952409, at *10, Kirschbaum v. Reliant Energy, Inc. (5th Cir. Aug. 17, 2006); 

see, e.g., Secretary of Labor Amicus Br., 1994 WL 

16012393, at *9-*23, Moench, supra (3d Cir. 1994). 

That longstanding view is entitled to some weight. 

See Mead Corp. v. Tilley, 490 U.S. 714, 722 (1989). 

3.	 Petitioners’ policy rationales do not justify a 

presumption of prudence 

Petitioners and their amici identify various policy 

reasons that in their view support a nearly absolute 

presumption of prudence. Those policy assertions do 

not warrant a judicially fashioned barrier to relief that 

has no mooring in ERISA’s text. 

a. Petitioners predict that without a presumption 

of prudence, ESOP fiduciaries will be subject to liability because the company’s “share price fell.” Pet. Br. 

16; see id. at 17-18, 24, 34, 51. That concern miscomprehends the prudent-person standard. Just as with 

fiduciaries of other types of ERISA plans, see pp. 13-

14, supra, a claim that the price of a publicly traded 

stock decreased, even substantially, is insufficient to 

state a claim against an ESOP fiduciary. 

Amicus Delta Airlines (Br. 5) is therefore correct 

that “[w]hen there is no allegation that a company’s 

stock price reflected anything other than its true 

value, claims challenging a plan fiduciary’s investment 
 

 

 

 

 

 

 

 

27
 

in employer stock” should typically be dismissed. But 

where a plaintiff plausibly alleges that the fiduciary 

knew, or should have known, that the employer stock 

“traded at an artificially inflated price due to fraud, 

improper accounting practices, overvaluation of assets, or material misstatements about the company’s 

prospects,” id. at 7, and yet neither stopped investing 

in it and offering it as an investment option, nor made 

corrective disclosures so that plan participants could 

decide to stop investing in it, he has stated a claim for 

breach of fiduciary duty. Petitioners’ extreme position—that even when fiduciaries know that the company’s financial statements do not reflect its true 

financial health and the market price therefore does 

not accurately reflect the actual value of the stock, 

they never have an obligation to take action to protect 

plan participants unless the company is on the “brink 

of collapse” (Br. 34 (citation omitted))—would thwart 

the basic objective of ERISA to promote retirement 

security. 

Petitioners and their amici cite what they see as a 

significant number of meritless suits against ESOP 

fiduciaries. See, e.g., Chamber of Commerce Amicus 

Br. 18-21. Even if their characterizations of those 

suits are accurate, however, any decision to heighten 

the ordinary pleading standards in this context should 

be made by Congress. Cf. e.g., Private Securities 

Litigation Reform Act of 1995, Pub. L. No. 104-67, 109 

Stat. 737. And in any event, permitting suits based on 

“allegations that the share price was overvalued and 

the fiduciaries knew of that overvaluation” will not 

open the door to baseless claims. Delta Airlines Amicus Br. 18. 
 

 

 

 

 

 

 

 

 

 

28
 

b. Petitioners further contend that “insufficient 

deference to ESOP fiduciaries would give rise to unintended and avoidable conflicts with securities law.” 

Pet. Br. 42 (capitalization altered). That argument 

also lacks merit. 

i. Petitioners argue that without a presumption of 

prudence, a fiduciary who is also a corporate insider 

might be forced to violate the securities laws by trading on inside information on behalf of plan participants. It is true that a fiduciary may not sell stock on 

behalf of participants, or notify participants that they 

should do so, based on inside information. See 15 

U.S.C. 77q(a); 78j(b); 17 C.F.R. 240.10b-5. That securities-law limitation restricts the range of options that 

an ESOP fiduciary who is also a corporate insider may 

have available to fulfill his obligation to “discharge his 

duties with respect to a plan solely in the interest of 

the participants and beneficiaries.” 29 U.S.C. 

1104(a)(1). But it does not leave him without options. 

As petitioners acknowledge (Br. 43), a fiduciary can 

publicly disclose information to the market that brings 

the price of the employer stock in line with its value, 

cease further purchases of the stock, or both. Cf. 29 

U.S.C. 1021(i)(2)(C)(i) and (7)(B)(i) (provisions relating to suspension of plan trading due to ERISA’s 

fiduciary duties or the securities laws). The fiduciary 

can also alert the proper regulatory agencies, such as 

the Securities and Exchange Commission (SEC) or 

the Department of Labor, to any alleged misstatements in securities filings. Those courses do not violate the securities laws. 

Petitioners argue that public disclosure would decrease the value of the assets already held by the plan. 

That would be true if the price has been artificially 
 

 

 

 

 

 

 

 

 

 

 

29
 

inflated by the company’s public misrepresentations. 

But if so, a similar or greater drop might well occur if 

correction of the misrepresentations were delayed— 

potentially months or years later, after even more of 

the employees’ retirement savings have been invested 

in the overpriced assets. It better serves the interests 

of the plan participants if the fiduciaries take immediate actions to bring the price of the stock in line with 

its true value by disclosing the material nonpublic 

information. 

Petitioners contend (Br. 44) that if a fiduciary stops 

investing in employer stock without disclosing the 

information to the market, the market could overreact 

and cause the price to drop by more than it would if 

the information was disclosed. That might be so. A 

prudent fiduciary, therefore, should use her judgment 

to determine whether public disclosure in conjunction 

with a cessation in purchasing would better fulfill her 

obligations to plan participants and their beneficiaries. The timing and consequences of public disclosure, 

moreover, should be taken into account in computing 

any damages awarded for a breach of the duty of 

prudence. 

ii. Petitioners also maintain (Br. 44) that without a 

presumption of prudence, corporations will be required to disclose material nonpublic information at 

earlier times than when disclosure is required by the 

securities laws. That is not so. The Department of 

Labor does not take the position that an ESOP fiduciary, to avoid liability for a breach of the duty of prudence, must disclose information to the public sooner 

than when federal securities laws would require disclosure. For example, certain triggering events must 

be disclosed through SEC Form 8-K within four busi-
 

 

 

 

 

 

 

 

30
 

ness days of their occurrence. Other information must 

be disclosed quarterly or annually through Form 10-K 

and Form 10-Q. The securities laws reflect a reasonable judgment about how soon particular categories of 

information must be disclosed to investors, and it is 

sensible to interpret ERISA’s duty of prudence harmoniously with those requirements. 

But where, as here, it is plausibly alleged that the 

fiduciaries knew, or would have known if they had 

conducted an adequate investigation, that the company was making material misstatements to the public 

about the soundness of its business—i.e., that the 

corporate insiders were violating the securities 

laws—no justification exists to shield them from liability to plan participants who entrusted the fiduciaries 

with their retirement savings. The securities laws 

certainly do not require that result. 

iii. Even if corporate officers who are ESOP fiduciaries were required in some respects to adhere to 

stricter obligations than what the securities laws require, that would be a consequence of the corporation’s own decision to establish an ESOP and to install 

its officers as plan fiduciaries. There is nothing remarkable about the fact that the decision to take on 

strict fiduciary obligations to plan participants would 

limit the range of options available to corporate insiders with respect to the disclosure of inside information. 

In any event, the consequences that petitioners 

posit can largely be avoided if an employer assigns a 

non-insider, such as an outside financial institution, to 

be the investment fiduciary of the ESOP. Although a 

designated employee of the company or another person would have responsibility for monitoring the per-
 

 

 

 

 

 

 

31
 

formance of the investment fiduciary, and would 

therefore have a fiduciary duty to keep the trustee 

informed of any pertinent information, the company 

could place a person in that role who is not likely to 

know material inside information. 

More generally, in light of the common-law origins 

and statutory purposes of ERISA, it would be anomalous if the fact that some ESOP fiduciaries are corporate insiders gave rise to a more lenient standard of 

prudence. At common law, a trustee corporation’s 

“peculiar knowledge of the value of [its own] shares 

[was] a factor to be considered in determining whether the making or the retention of an investment in its 

own shares is negligent.” 2 Scott § 170.15, at 1339. 

And ERISA’s legislative history expressed the concern that “where the investments may inure to the 

direct or indirect benefit of the plan sponsor * * * 

participants might be subject to pressure with respect 

to investment decisions.” Conference Report 305. It 

is therefore difficult to believe, as petitioners contend, 

that Congress would have intended courts to almost 

completely defer to employers in this context. 

4.	 No reason exists to apply a presumption of 

prudence at the summary-judgment or trial stages 

either 

The Sixth Circuit has conceived of the presumption 

of prudence as a framework for weighing evidence and 

therefore has not required plaintiffs to plead facts 

overcoming the presumption. Pet. App. 11-12; Pfeil v. 

State St. Bank & Trust Co., 671 F.3d 585, 592-593, 

cert. denied, 133 S. Ct. 758 (2012). But it has nevertheless stated that the presumption imposes a “demanding burden” on plaintiffs at the summaryjudgment and factfinding stages. Pfeil, 671 F.3d at 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5 

32
 

595. Although that version of the presumption is 

preferable to a standard in which a plaintiff would 

have to plead “rare and extraordinary circumstances” 

(Pet. Br. 34), it is inconsistent with ERISA as well. 

Courts sometimes impose special evidentiary presumptions when the party who would otherwise bear 

the burden of proof is poorly positioned to establish a 

particular fact—for example, because “the facts with 

regard to an issue lie peculiarly in the knowledge of 

[the other] party.” Smith v. United States, 133 S. Ct. 

714, 720 (2013) (citation omitted); see, e.g., McDonnell 

Douglas Corp. v. Green, 411 U.S. 792, 802-803 (1973). 

Evidentiary presumptions also can be justified by 

“considerations of fairness, public policy, and probability, as well as judicial economy.” United States 

Dep’t of Justice v. Landano, 508 U.S. 165, 174 (1993) 

(internal quotation marks and citation omitted). 

Those considerations do not justify any special presumption in the context of claims that ESOP fiduciaries breached the duty of prudence by continuing to 

invest in employer stock. The burden of alleging and 

proving a breach of the fiduciary duty of prudence 

already rests with the plaintiff. 5 However it is articulated, therefore, the only function of a special presumption would be to establish a threshold for proving 

the plaintiff’s claim greater than that required to 

show by a preponderance of the evidence that the 

fiduciary knew or reasonably should have known that 

Some courts of appeals have held that once a plaintiff has 

demonstrated a breach of fiduciary duty and made a prima facie 

showing of loss, the burden shifts to the fiduciary to prove that a 

loss would have occurred even without the breach. See, e.g., Martin v. Feilen, 965 F.2d 660, 671 (8th Cir. 1992), cert. denied, 506 

U.S. 1054 (1993). 
 

 

 

 

 

 

 

33
 

the employer securities were materially overvalued. 

Such a heightened burden would be particularly onerous in this context given that the critical question is 

often whether the defendants failed to conduct an 

adequate investigation—information uniquely within 

the defendants’ possession. The only purpose of increasing the burden on the plaintiff would thus be 

simply to make claims arising out of ESOP investment 

decisions very difficult to win. That is not a justification for a judicially fashioned presumption. 

B. Respondents	 Stated A Claim For Breach Of 

ERISA’s Duty Of Prudence 

Respondents’ complaint (J.A. 15-117) adequately 

stated a claim for breach of the duty of prudence. 

Their detailed allegations did not rest on a “mere 

decline in stock price.” Pet. Br. 17, 34. The gravamen 

of their claims was that petitioners knew—or, if they 

had conducted a reasonable investigation, would have 

known—that Fifth Third stock was not worth what 

the Plan was paying for it, in large part because the 

company’s subprime mortgage lending practice was 

misleadingly or insufficiently disclosed. Pet. App. 4-5; 

J.A. 98-104. 

That claim was supported by detailed allegations. 

Respondents alleged, for example, that in publicly 

describing what types of mortgages were contained in 

Fifth Third’s loan portfolio, petitioners failed to disclose “the Company’s internal working definition of 

‘prime,’ which was utterly and completely inconsistent 

with commonly accepted definitions of the term within 

the banking industry.” J.A. 57. They also alleged that 

the company did not disclose that it had been originating loans in which the borrowers did not meet the 

requisite qualifications. J.A. 63. Fifth Third’s portfo-
 

 

 

 

 

 

 

 

 

 

 

34
 

lio, they claimed, “was riddled with undercollateralized loans issued to borrowers that lacked 

sufficient incomes or assets to repay their loans.” J.A. 

65. 

Respondents further alleged that petitioners, due 

to their positions within the company, knew about 

these problems and numerous others detailed in the 

complaint. J.A. 86-87, 98-99, 102. They claimed that 

petitioners “failed to conduct an appropriate investigation into whether Fifth Third Stock was a prudent 

investment for the Plan and, in connection therewith, 

failed to provide Plan participants and beneficiaries 

with information regarding Fifth Third’s problems so 

that participants could make informed decisions.” 

J.A. 87-88, 99. Petitioners, they maintained, could 

have taken such actions as “discontinuing further 

contributions to and/or investment in Fifth Third 

Stock” or “consulting with the [Department of Labor] 

or independent fiduciaries regarding appropriate 

measures.” J.A. 88-89, 103. But petitioners “failed to 

take any action to protect participants.” J.A. 89. As a 

result, “[t]he Plan suffered millions of dollars in principal losses.” J.A. 113. 

Those allegations are not “[t]hreadbare recitals of 

the elements of a cause of action, supported by mere 

conclusory statements.” Ashcroft v. Iqbal, 556 U.S. 

662, 678 (2009). Fifth Third may not have been on the 

“brink of collapse,” and thus petitioners’ “rare and 

extraordinary circumstances” test would not be met. 

But respondents have sufficiently alleged that petitioners invested employees’ retirement savings in 

securities that they knew or reasonably should have 

known were materially overpriced. That suffices to 

state a claim for breach of the duty of prudence. 
 

 

 

35 

CONCLUSION 

The judgment of the court of appeals should be affirmed. 

Respectfully submitted. 

DONALD B. VERRILLI, JR. 

Solicitor General
 

Solicitor of Labor EDWIN S. KNEEDLER
 

M. PATRICIA SMITH 

G. WILLIAM SCOTT Deputy Solicitor General 

Acting Associate Solicitor JOHN F. BASH 

ELIZABETH HOPKINS Assistant to the Solicitor 

Counsel for Appellate and General 

Special Litigation 

THOMAS TSO 

Attorney
 

Department of Labor
 

MARCH 2014 
 

 

 

 

 

 

 

STATUTORY APPENDIX
 

1. Section 803(h) of the Tax Reform Act of 1976, Public Law No. 94-455 provides: 

TITLE VIII—CAPITAL FORMATION 

* * * * * 

Sec. 803.	 EMPLOYEE STOCK OWNERSHIP PLANS; 

STUDY OF EXPANDED STOCK OWNERSHIP 

* * * * * 

(h) INTENT OF CONGRESS CONCERNING EMPLOYEE 

STOCK OWNERSHIP PLANS.—The Congress, in a series 

of laws (the Regional Rail Reorganization Act of 1973, 

the Employee Retirement Income Security ACT of 

1974, the Trade Act of 1974, and the Tax Reduction Act 

of 1975) and this Act has made clear its interest in encouraging employee stock ownership plans as a bold 

and innovative method of strengthening the free private 

enterprise system which will solve the dual problems of 

securing capital funds for necessary capital growth and 

of bringing about stock ownership by all corporate employees. The Congress is deeply concerned that the 

objectives sought by this series of laws will be made 

unattainable by regulations and rulings which treat 

employee stock ownership plans as conventional retirement plans, which reduce the freedom of the employee 

trusts and employers to take the necessary steps to 

implement the plans, and which otherwise block the establishment and success of these plans. Because of the 

special purposes for which employee stock ownership 

plans are established, it is consistent with the intent of 

Congress to permit these plans (whether structured as 

(1a) 
 

 

2a 

pension, stock bonus, or profit–sharing plans) to distribute income on employer securities currently. 

2. 29 U.S.C. 1001 provides: 

Congressional findings and declaration of policy 

(a)	 Benefit plans as affecting interstate commerce and 

the Federal taxing power 

The Congress finds that the growth in size, scope, 

and numbers of employee benefit plans in recent years 

has been rapid and substantial; that the operational 

scope and economic impact of such plans is increasingly 

interstate; that the continued well-being and security of 

millions of employees and their dependents are directly 

affected by these plans; that they are affected with a 

national public interest; that they have become an important factor affecting the stability of employment and 

the successful development of industrial relations; that 

they have become an important factor in commerce because of the interstate character of their activities, and 

of the activities of their participants, and the employers, 

employee organizations, and other entities by which 

they are established or maintained; that a large volume 

of the activities of such plans are carried on by means of 

the mails and instrumentalities of interstate commerce; 

that owing to the lack of employee information and adequate safeguards concerning their operation, it is desirable in the interests of employees and their beneficiaries, and to provide for the general welfare and the 

free flow of commerce, that disclosure be made and 

safeguards be provided with respect to the establish-
 

 

 

 

 

 

 

 

 

3a 

ment, operation, and administration of such plans; that 

they substantially affect the revenues of the United 

States because they are afforded preferential Federal 

tax treatment; that despite the enormous growth in 

such plans many employees with long years of employment are losing anticipated retirement benefits owing 

to the lack of vesting provisions in such plans; that owing to the inadequacy of current minimum standards, 

the soundness and stability of plans with respect to adequate funds to pay promised benefits may be endangered; that owing to the termination of plans before requisite funds have been accumulated, employees and 

their beneficiaries have been deprived of anticipated 

benefits; and that it is therefore desirable in the interests of employees and their beneficiaries, for the protection of the revenue of the United States, and to provide for the free flow of commerce, that minimum 

standards be provided assuring the equitable character 

of such plans and their financial soundness. 

(b)	 Protection of interstate commerce and beneficiaries 

by requiring disclosure and reporting, setting 

standards of conduct, etc., for fiduciaries 

It is hereby declared to be the policy of this chapter 

to protect interstate commerce and the interests of participants in employee benefit plans and their beneficiaries, by requiring the disclosure and reporting to participants and beneficiaries of financial and other information with respect thereto, by establishing standards 

of conduct, responsibility, and obligation for fiduciaries 

of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts. 
 

 

 

 

 

 

 

4a 

(c)	 Protection of interstate commerce, the Federal 

taxing power, and beneficiaries by vesting of accrued benefits, setting minimum standards of 

funding, requiring termination insurance 

It is hereby further declared to be the policy of this 

chapter to protect interstate commerce, the Federal 

taxing power, and the interests of participants in private pension plans and their beneficiaries by improving 

the equitable character and the soundness of such plans 

by requiring them to vest the accrued benefits of employees with significant periods of service, to meet minimum standards of funding, and by requiring plan termination insurance. 

3. 29 U.S.C. 1002 provides in pertinent part: 

Definitions 

For purposes of this subchapter:
 

* * * * *
 

(18) The term “adequate consideration” when used 

in part 4 of subtitle B of this subchapter means (A) in 

the case of a security for which there is a generally 

recognized market, either (i) the price of the security 

prevailing on a national securities exchange which is 

registered under section 78f of Title 15, or (ii) if the 

security is not traded on such a national securities exchange, a price not less favorable to the plan than the 

offering price for the security as established by the current bid and asked prices quoted by persons independent of the issuer and of any party in interest; and (B) in 
 

 

 

 

5a 

the case of an asset other than a security for which 

there is a generally recognized market, the fair market 

value of the asset as determined in good faith by the 

trustee or named fiduciary pursuant to the terms of the 

plan and in accordance with regulations promulgated by 

the Secretary. 

* * * * * 

(21)(A) Except as otherwise provided in subparagraph (B), a person is a fiduciary with respect to a plan 

to the extent (i) he exercises any discretionary authority or discretionary control respecting management of 

such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation, 

direct or indirect, with respect to any moneys or other 

property of such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority 

or discretionary responsibility in the administration of 

such plan. Such term includes any person designated 

under section 1105(c)(1)(B) of this title. 

(B) If any money or other property of an employee 

benefit plan is invested in securities issued by an investment company registered under the Investment Company Act of 1940 [15 U.S.C.A. § 80a-1 et seq.], such 

investment shall not by itself cause such investment 

company or such investment company’s investment adviser or principal underwriter to be deemed to be a fiduciary or a party in interest as those terms are defined 

in this subchapter, except insofar as such investment 

company or its investment adviser or principal underwriter acts in connection with an employee benefit plan 
 

 

 

 

 

 

6a 

covering employees of the investment company, the investment adviser, or its principal underwriter. Nothing contained in this subparagraph shall limit the duties 

imposed on such investment company, investment adviser, or principal underwriter by any other law. 

* * * * * 

(34) The term “individual account plan” or “defined 

contribution plan” means a pension plan which provides 

for an individual account for each participant and for 

benefits based solely upon the amount contributed to 

the participant’s account, and any income, expenses, 

gains and losses, and any forfeitures of accounts of 

other participants which may be allocated to such participant’s account. 

4. 29 U.S.C. 1104 provides in pertinent part: 

Fiduciary duties 

(a) Prudent man standard of care 

(1) Subject to sections 1103(c) and (d), 1342, and 

1344 of this title, a fiduciary shall discharge his duties with respect to a plan solely in the interest of 

the participants and beneficiaries and— 

(A) for the exclusive purpose of: 

(i) providing benefits to participants and 

their beneficiaries; and 

(ii) defraying reasonable expenses of administering the plan; 
 

 

 

 

 

 

7a 

(B) with the care, skill, prudence, and diligence under the circumstances then prevailing 

that a prudent man acting in a like capacity and 

familiar with such matters would use in the conduct of an enterprise of a like character and with 

like aims; 

(C) by diversifying the investments of the 

plan so as to minimize the risk of large losses, 

unless under the circumstances it is clearly prudent not to do so; and 

(D) in accordance with the documents and 

instruments governing the plan insofar as such 

documents and instruments are consistent with 

the provisions of this subchapter and subchapter 

III of this chapter. 

(2) In the case of an eligible individual account 

plan (as defined in section 1107(d)(3) of this title), 

the diversification requirement of paragraph (1)(C) 

and the prudence requirement (only to the extent 

that it requires diversification) of paragraph (1)(B) 

is not violated by acquisition or holding of qualifying 

employer real property or qualifying employer securities (as defined in section 1107(d)(4) and (5) of 

this title). 

* * * * * 

(c) Control over assets by participant or beneficiary 

(1)(A) In the case of a pension plan which provides for individual accounts and permits a participant or beneficiary to exercise control over the assets in his account, if a participant or beneficiary 
 

 

 

 

8a 

exercises control over the assets in his account (as 

determined under regulations of the Secretary)— 

(i) such participant or beneficiary shall not 

be deemed to be a fiduciary by reason of such 

exercise, and 

(ii) no person who is otherwise a fiduciary 

shall be liable under this part for any loss, or by 

reason of any breach, which results from such 

participant’s or beneficiary’s exercise of control, 

except that this clause shall not apply in connection with such participant or beneficiary for any 

blackout period during which the ability of such 

participant or beneficiary to direct the investment of the assets in his or her account is suspended by a plan sponsor or fiduciary. 

(B) If a person referred to in subparagraph 

(A)(ii) meets the requirements of this subchapter in 

connection with authorizing and implementing the 

blackout period, any person who is otherwise a fiduciary shall not be liable under this subchapter for 

any loss occurring during such period. 

(C) For purposes of this paragraph, the term 

“blackout period” has the meaning given such term by 

section 1021(i)(7) of this title. 

(2) In the case of a simple retirement account established pursuant to a qualified salary reduction arrangement under section 408(p) of Title 26, a participant or beneficiary shall, for purposes of paragraph (1), 

be treated as exercising control over the assets in the 

account upon the earliest of— 
 

 

 

 

 

 

9a 

(A) an affirmative election among investment 

options with respect to the initial investment of 

any contribution, 

(B) a rollover to any other simple retirement 

account or individual retirement plan, or 

(C) one year after the simple retirement account is established. 

No reports, other than those required under section 

1021(g) of this title, shall be required with respect to a 

simple retirement account established pursuant to such 

a qualified salary reduction arrangement. 

(3) In the case of a pension plan which makes a 

transfer to an individual retirement account or annuity 

of a designated trustee or issuer under section 

401(a)(31)(B) of the Internal Revenue Code of 1986, the 

participant or beneficiary shall, for purposes of paragraph (1), be treated as exercising control over the 

assets in the account or annuity upon— 

(A) the earlier of— 

(i) a rollover of all or a portion of the amount to 

another individual retirement account or annuity; or 

(ii) one year after the transfer is made; or 

(B) a transfer that is made in a manner consistent 

with guidance provided by the Secretary. 

(4)(A) In any case in which a qualified change in investment options occurs in connection with an individual account plan, a participant or beneficiary shall not be 

treated for purposes of paragraph (1) as not exercising 

control over the assets in his account in connection with 
 

 

 

 

 

 

 

10a 

such change if the requirements of subparagraph (C) 

are met in connection with such change. 

(B) For purposes of subparagraph (A), the term 

“qualified change in investment options” means, in connection with an individual account plan, a change in the 

investment options offered to the participant or beneficiary under the terms of the plan, under which— 

(i) the account of the participant or beneficiary 

is reallocated among one or more remaining or new 

investment options which are offered in lieu of one 

or more investment options offered immediately 

prior to the effective date of the change, and 

(ii) the stated characteristics of the remaining 

or new investment options provided under clause (i), 

including characteristics relating to risk and rate of 

return, are, as of immediately after the change, 

reasonably similar to those of the existing investment options as of immediately before the change. 

(C) The requirements of this subparagraph are 

met in connection with a qualified change in investment 

options if— 

(i) at least 30 days and no more than 60 days 

prior to the effective date of the change, the plan administrator furnishes written notice of the change to 

the participants and beneficiaries, including information comparing the existing and new investment 

options and an explanation that, in the absence of 

affirmative investment instructions from the participant or beneficiary to the contrary, the account of 
 

 

 

 

 

 

11a 

the participant or beneficiary will be invested in the 

manner described in subparagraph (B), 

(ii) the participant or beneficiary has not provided to the plan administrator, in advance of the 

effective date of the change, affirmative investment 

instructions contrary to the change, and 

(iii) the investments under the plan of the participant or beneficiary as in effect immediately prior 

to the effective date of the change were the product 

of the exercise by such participant or beneficiary of 

control over the assets of the account within the 

meaning of paragraph (1). 

(5) DEFAULT INVESTMENT ARRANGEMENTS.— 

(A) IN GENERAL.—For purposes of paragraph 

(1), a participant or beneficiary in an individual 

account plan meeting the notice requirements of 

subparagraph (B) shall be treated as exercising 

control over the assets in the account with respect 

to the amount of contributions and earnings which, 

in the absence of an investment election by the 

participant or beneficiary, are invested by the plan 

in accordance with regulations prescribed by the 

Secretary. The regulations under this subparagraph shall provide guidance on the appropriateness of designating default investments that include a mix of asset classes consistent with capital 

preservation or long-term capital appreciation, or 

a blend of both. 
 

 

 

 

 

12a 

(B) NOTICE REQUIREMENTS.— 

(i) IN GENERAL.—The requirements of 

this subparagraph are met if each participant 

or beneficiary— 

(I) receives, within a reasonable 

period of time before each plan year, a 

notice explaining the employee’s right 

under the plan to designate how contributions and earnings will be invested 

and explaining how, in the absence of 

any investment election by the participant or beneficiary, such contributions 

and earnings will be invested, and 

(II) has a reasonable period of time 

after receipt of such notice and before 

the beginning of the plan year to make 

such designation. 

(ii) FORM OF NOTICE.—The requirements of clauses (i) and (ii) of section 401(k)(12)(D) of Title 26 shall 

apply with respect to the notices described in this subparagraph. 

5. 29 U.S.C. 1106(a) provides: 

Prohibited transactions 

(a) Transactions between plan and party in interest 

Except as provided in section 1108 of this title: 

(1) A fiduciary with respect to a plan shall not 

cause the plan to engage in a transaction, if he 
 

 

 

 

 

 

 

 

 

13a 

knows or should know that such transaction constitutes a direct or indirect— 

(A) sale or exchange, or leasing, of any property between the plan and a party in interest; 

(B) lending of money or other extension of 

credit between the plan and a party in interest; 

(C) furnishing of goods, services, or facilities 

between the plan and a party in interest; 

(D) transfer to, or use by or for the benefit of 

a party in interest, of any assets of the plan; or 

(E) acquisition, on behalf of the plan, of any 

employer security or employer real property in 

violation of section 1107(a) of this title. 

(2) No fiduciary who has authority or discretion to 

control or manage the assets of a plan shall permit the 

plan to hold any employer security or employer real 

property if he knows or should know that holding such 

security or real property violates section 1107(a) of this 

title. 

6. 29 U.S.C. 1107 provides: 

Limitation with respect to acquisition and holding of 

employer securities and employer real property by 

certain plans 

(a) Percentage limitation 

Except as otherwise provided in this section and 

section 1114 of this title: 
 

 

 

 

 

 

 

 

 

 

14a 

(1) A plan may not acquire or hold— 

(A) any employer security which is not a 

qualifying employer security, or 

(B) any employer real property which is not 

qualifying employer real property. 

(2) A plan may not acquire any qualifying employer security or qualifying employer real property, if immediately after such acquisition the aggregate fair market value of employer securities and 

employer real property held by the plan exceeds 10 

percent of the fair market value of the assets of the 

plan. 

(3)(A) After December 31, 1984, a plan may not 

hold any qualifying employer securities or qualifying employer real property (or both) to the extent 

that the aggregate fair market value of such securities and property determined on December 31, 1984, 

exceeds 10 percent of the greater of— 

(i) the fair market value of the assets of the 

plan, determined on December 31, 1984, or 

(ii) the fair market value of the assets of the 

plan determined on January 1, 1975. 

(B) Subparagraph (A) of this paragraph shall not 

apply to any plan which on any date after December 

31, 1974; and before January 1, 1985, did not hold 

employer securities or employer real property (or 

both) the aggregate fair market value of which determined on such date exceeded 10 percent of the 

greater of 
 

 

 

 

 

 

 

 

 

 

15a 

(i) the fair market value of the assets of the 

plan, determined on such date, or 

(ii) the fair market value of the assets of the 

plan determined on January 1, 1975. 

(4)(A) After December 31, 1979, a plan may not 

hold any employer securities or employer real 

property in excess of the amount specified in regulations under subparagraph (B). This subparagraph 

shall not apply to a plan after the earliest date after 

December 31, 1974, on which it complies with such 

regulations. 

(B) Not later than December 31, 1976, the Secretary shall prescribe regulations which shall have 

the effect of requiring that a plan divest itself of 50 

percent of the holdings of employer securities and 

employer real property which the plan would be required to divest before January 1, 1985, under paragraph (2) or subsection (c) of this section (whichever is applicable). 

(b) Exception 

(1) Subsection (a) of this section shall not apply to 

any acquisition or holding of qualifying employer securities or qualifying employer real property by an eligible individual account plan. 

(2)(A) If this paragraph applies to an eligible individual account plan, the portion of such plan which 

consists of applicable elective deferrals (and earnings 

allocable thereto) shall be treated as a separate plan— 
 

 

 

 

 

 

16a 

(i) which is not an eligible individual account 

plan, and 

(ii) to which the requirements of this section apply. 

(B)(i) This paragraph shall apply to any eligible individual account plan if any portion of the plan’s applicable elective deferrals (or earnings allocable thereto) 

are required to be invested in qualifying employer 

securities or qualifying employer real property or 

both— 

(I) pursuant to the terms of the plan, or 

(II) at the direction of a person other than the 

participant on whose behalf such elective deferrals 

are made to the plan (or a beneficiary). 

(ii) This paragraph shall not apply to an individual 

account plan for a plan year if, on the last day of the 

preceding plan year, the fair market value of the assets 

of all individual account plans maintained by the employer equals not more than 10 percent of the fair market value of the assets of all pension plans (other than 

multiemployer plans) maintained by the employer. 

(iii) This paragraph shall not apply to an individual 

account plan that is an employee stock ownership plan 

as defined in section 4975(e)(7) of Title 26. 

(iv) This paragraph shall not apply to an individual 

account plan if, pursuant to the terms of the plan, the 

portion of any employee’s applicable elective deferrals 

which is required to be invested in qualifying employer 

securities and qualifying employer real property for 
 

 

 

 

 

17a 

any year may not exceed 1 percent of the employee’s 

compensation which is taken into account under the 

plan in determining the maximum amount of the employee’s applicable elective deferrals for such year. 

(C) For purposes of this paragraph, the term “applicable elective deferral” means any elective deferral 

(as defined in section 402(g)(3)(A) of Title 26) which is 

made pursuant to a qualified cash or deferred arrangement as defined in section 401(k) of Title 26. 

(3) CROSS REFERENCES.— 

(A) For exemption from diversification requirements for holding of qualifying employer securities 

and qualifying employer real property by eligible individual account plans, see section 1104(a)(2) of this 

title. 

(B) For exemption from prohibited transactions 

for certain acquisitions of qualifying employer securities and qualifying employer real property which 

are not in violation of 10 percent limitation, see section 1108(e) of this title. 

(C) For transitional rules respecting securities or 

real property subject to binding contracts in effect on 

June 30, 1974, see section 1114(c) of this title. 

(D) For diversification requirements for qualifying employer securities held in certain individual account plans, see section 1054(j) of this title. 
 

 

 

 

 

 

 

 

 

 

 

 

18a 

(c) Election 

(1) A plan which makes the election, under paragraph (3) shall be treated as satisfying the requirement 

of subsection (a)(3) of this section if and only if employer securities held on any date after December 31, 1974 

and before January 1, 1985 have a fair market value, 

determined as of December 31, 1974, not in excess of 10 

percent of the lesser of— 

(A) the fair market value of the assets of the 

plan determined on such date (disregarding any 

portion of the fair market value of employer securities which is attributable to appreciation of such securities after December 31, 1974) but not less than 

the fair market value of plan assets on January 1, 

1975, or 

(B) an amount equal to the sum of (i) the total 

amount of the contributions to the plan received after December 31, 1974, and prior to such date, plus 

(ii) the fair market value of the assets of the plan, 

determined on January 1, 1975. 

(2) For purposes of this subsection, in the case of an 

employer security held by a plan after January 1, 1975, 

the ownership of which is derived from ownership of 

employer securities held by the plan on January 1, 1975, 

or from the exercise of rights derived from such ownership, the value of such security held after January 1, 

1975, shall be based on the value as of January 1, 1975, 

of the security from which ownership was derived. The 

Secretary shall prescribe regulations to carry out this 

paragraph. 
 

 

 

 

 

 

 

19a 

(3) An election under this paragraph may not be 

made after December 31, 1975. Such an election shall be 

made in accordance with regulations prescribed by the 

Secretary, and shall be irrevocable. A plan may make 

an election under this paragraph only if on January 1, 

1975, the plan holds no employer real property. After 

such election and before January 1, 1985 the plan may 

not acquire any employer real property. 

(d) Definitions 

For purposes of this section— 

(1) The term “employer security” means a security issued by an employer of employees covered by 

the plan, or by an affiliate of such employer. A contract to which section 1108(b)(5) of this title applies 

shall not be treated as a security for purposes of this 

section. 

(2) The term “employer real property” means 

real property (and related personal property) which 

is leased to an employer of employees covered by 

the plan, or to an affiliate of such employer. For 

purposes of determining the time at which a plan 

acquires employer real property for purposes of this 

section, such property shall be deemed to be acquired by the plan on the date on which the plan 

acquires the property or on the date on which the 

lease to the employer (or affiliate) is entered into, 

whichever is later. 

(3)(A) The term “eligible individual account 

plan” means an individual account plan which is (i) a 

profit-sharing, stock bonus, thrift, or savings plan; 
 

 

 

 

 

 

20a 

(ii) an employee stock ownership plan; or (iii) a 

money purchase plan which was in existence on 

September 2, 1974, and which on such date invested 

primarily in qualifying employer securities. Such 

term excludes an individual retirement account or 

annuity described in section 408 of Title 26. 

(B) Notwithstanding subparagraph (A), a plan 

shall be treated as an eligible individual account 

plan with respect to the acquisition or holding of 

qualifying employer real property or qualifying employer securities only if such plan explicitly provides 

for acquisition and holding of qualifying employer 

securities or qualifying employer real property (as 

the case may be). In the case of a plan in existence 

on September 2, 1974, this subparagraph shall not 

take effect until January 1, 1976. 

(C) The term “eligible individual account plan” 

does not include any individual account plan the 

benefits of which are taken into account in determining the benefits payable to a participant under 

any defined benefit plan. 

(4) The term “qualifying employer real property” means parcels of employer real property— 

(A) if a substantial number of the parcels are 

dispersed geographically; 

(B) if each parcel of real property and the 

improvements thereon are suitable (or adaptable 

without excessive cost) for more than one use; 
 

 

 

 

 

21a 

(C) even if all of such real property is leased 

to one lessee (which may be an employer, or an 

affiliate of an employer); and 

(D) if the acquisition and retention of such 

property comply with the provisions of this part 

(other than section 1104(a)(1)(B) of this title to 

the extent it requires diversification, and sections 1104(a)(1)(C), 1106 of this title, and subsection (a) of this section). 

(5) The term “qualifying employer security” 

means an employer security which is— 

(A) stock, 

(B) a marketable obligation (as defined in 

subsection (e) of this section), or 

(C) an interest in a publicly traded partnership (as defined in section 7704(b) of Title 26), 

but only if such partnership is an existing partnership as defined in section 10211(c)(2)(A) of 

the Revenue Act of 1987 (Public Law 100-203). 

After December 17, 1987, in the case of a plan other 

than an eligible individual account plan, an employer 

security described in subparagraph (A) or (C) shall be 

considered a qualifying employer security only if such 

employer security satisfies the requirements of subsection (f)(1) of this section. 

(6) The term “employee stock ownership plan” 

means an individual account plan— 

(A) which is a stock bonus plan which is qualified, or a stock bonus plan and money purchase 
 

 

 

 

 

 

 

 

 

22a 

plan both of which are qualified, under section 

401 of Title 26, and which is designed to invest 

primarily in qualifying employer securities, and 

(B) which meets such other requirements as 

the Secretary of the Treasury may prescribe by 

regulation. 

(7) A corporation is an affiliate of an employer if 

it is a member of any controlled group of corporations (as defined in section 1563(a) of Title 26, except 

that “applicable percentage” shall be substituted for 

“80 percent” wherever the latter percentage appears in such section) of which the employer who 

maintains the plan is a member. For purposes of the 

preceding sentence, the term “applicable percentage” means 50 percent, or such lower percentage as 

the Secretary may prescribe by regulation. A person 

other than a corporation shall be treated as an affiliate of an employer to the extent provided in regulations of the Secretary. An employer which is a person other than a corporation shall be treated as affiliated with another person to the extent provided 

by regulations of the Secretary. Regulations under 

this paragraph shall be prescribed only after consultation and coordination with the Secretary of the 

Treasury. 

(8) The Secretary may prescribe regulations 

specifying the extent to which conversions, splits, 

the exercise of rights, and similar transactions are 

not treated as acquisitions. 

(9) For purposes of this section, an arrangement 

which consists of a defined benefit plan and an indi-
 

 

 

23a 

vidual account plan shall be treated as 1 plan if the 

benefits of such individual account plan are taken 

into account in determining the benefits payable 

under such defined benefit plan. 

(e) Marketable obligations 

For purposes of subsection (d)(5) of this section, the 

term “marketable obligation” means a bond, debenture, 

note, or certificate, or other evidence of indebtedness 

(hereinafter in this subsection referred to as “obligation”) if— 

(1) such obligation is acquired— 

(A) on the market, either (i) at the price of the 

obligation prevailing on a national securities exchange which is registered with the Securities and 

Exchange Commission, or (ii) if the obligation is not 

traded on such a national securities exchange, at a 

price not less favorable to the plan than the offering 

price for the obligation as established by current bid 

and asked prices quoted by persons independent of 

the issuer; 

(B) from an underwriter, at a price (i) not in excess of the public offering price for the obligation as 

set forth in a prospectus or offering circular filed 

with the Securities and Exchange Commission, and 

(ii) at which a substantial portion of the same issue 

is acquired by persons independent of the issuer; or 

(C) directly from the issuer, at a price not less 

favorable to the plan than the price paid currently 

for a substantial portion of the same issue by persons independent of the issuer; 
 

 

 

 

 

24a 

(2) immediately following acquisition of such obligation— 

(A) not more than 25 percent of the aggregate 

amount of obligations issued in such issue and outstanding at the time of acquisition is held by the 

plan, and 

(B) at least 50 percent of the aggregate amount 

referred to in subparagraph (A) is held by persons 

independent of the issuer; and 

(3) immediately following acquisition of the obligation, not more than 25 percent of the assets of the plan 

is invested in obligations of the employer or an affiliate 

of the employer. 

(f)	 Maximum percentage of stock held by plan; time of 

holding or acquisition; necessity of legally binding 

contract 

(1) Stock satisfies the requirements of this paragraph if, immediately following the acquisition of such 

stock— 

(A) no more than 25 percent of the aggregate 

amount of stock of the same class issued and outstanding at the time of acquisition is held by the 

plan, and 

(B) at least 50 percent of the aggregate amount 

referred to in subparagraph (A) is held by persons 

independent of the issuer. 

(2) Until January 1, 1993, a plan shall not be treated 

as violating subsection (a) of this section solely by 
 

 

 

 

 

 

 

 

 

25a 

holding stock which fails to satisfy the requirements of 

paragraph (1) if such stock— 

(A)	 has been so held since December 17, 1987, or 

(B) was acquired after December 17, 1987, pursuant to a legally binding contract in effect on December 17, 1987, and has been so held at all times 

after the acquisition. 

7. 29 U.S.C. 1108(e) provides: 

Exemptions from prohibited transactions 

* * * * * 

(e)	 Acquisition or sale by plan of qualifying employer 

securities; acquisition, sale, or lease by plan of 

qualifying employer real property 

Sections 1106 and 1107 of this title shall not apply to 

the acquisition or sale by a plan of qualifying employer 

securities (as defined in section 1107(d)(5) of this title) 

or acquisition, sale or lease by a plan of qualifying employer real property (as defined in section 1107(d)(4) of 

this title)— 

(1) if such acquisition, sale, or lease is for adequate consideration (or in the case of a marketable 

obligation, at a price not less favorable to the plan 

than the price determined under section 1107(e)(1) 

of this title), 

(2) if no commission is charged with respect 

thereto, and 

(3)	 if— 
 

 

 

 

26a 

(A) the plan is an eligible individual account 

plan (as defined in section 1107(d)(3) of this title), 

or 

(B) in the case of an acquisition or lease of qualifying employer real property by a plan which is not 

an eligible individual account plan, or of an acquisition of qualifying employer securities by such a plan, 

the lease or acquisition is not prohibited by section 

1107(a) of this title. 

8. 29 U.S.C. 1110(a) provides: 

Exculpatory provisions; insurance 

(a) Except as provided in sections 1105(b)(1) and 

1105(d) of this title, any provision in an agreement or 

instrument which purports to relieve a fiduciary from 

responsibility or liability for any responsibility, obligation, or duty under this part shall be void as against 

public policy. 

9. 29 C.F.R. 2550.404a-1 provides: 

SUBCHAPTER F—FIDUCIARY RESPONSIBILITY
 

UNDER THE EMPLOYEE RETIREMENT INCOME 

SECURITY ACT OF 1974
 

PART 2550—RULES AND REGULATIONS FOR FIDUCIARY RESPONSIBILITY 

* * * * * 
 

 

 

 

 

 

 

27a 

Investment duties. 

(a) In general. Section 404(a)(1)(B) of the Employee Retirement Income Security Act of 1974 (the 

Act) provides, in part, that a fiduciary shall discharge 

his duties with respect to a plan with the care, skill, 

prudence, and diligence under the circumstances then 

prevailing that a prudent man acting in a like capacity 

and familiar with such matters would use in the conduct 

of an enterprise of a like character and with like aims. 

(b) Investment duties. 

(1) With regard to an investment or investment 

course of action taken by a fiduciary of an employee 

benefit plan pursuant to his investment duties, the 

requirements of section 404(a)(1)(B) of the Act set forth 

in subsection (a) of this section are satisfied if the fiduciary: 

(i) Has given appropriate consideration to those 

facts and circumstances that, given the scope of such 

fiduciary’s investment duties, the fiduciary knows or 

should know are relevant to the particular investment 

or investment course of action involved, including the 

role the investment or investment course of action plays 

in that portion of the plan’s investment portfolio with 

respect to which the fiduciary has investment duties; 

and 

(ii) Has acted accordingly. 

(2) For purposes of paragraph (b)(1) of this section, 

“appropriate consideration” shall include, but is not 

necessarily limited to, 
 

 

 

 

28a 

(i) A determination by the fiduciary that the particular investment or investment course of action is 

reasonably designed, as part of the portfolio (or, where 

applicable, that portion of the plan portfolio with respect to which the fiduciary has investment duties), to 

further the purposes of the plan, taking into consideration the risk of loss and the opportunity for gain (or 

other return) associated with the investment or investment course of action, and 

(ii) Consideration of the following factors as they 

relate to such portion of the portfolio: 

(A) The composition of the portfolio with regard to 

diversification; 

(B) The liquidity and current return of the portfolio 

relative to the anticipated cash flow requirements of the 

plan; and 

(C) The projected return of the portfolio relative to 

the funding objectives of the plan. 

(3) An investment manager appointed, pursuant to 

the provisions of section 402(c)(3) of the Act, to manage 

all or part of the assets of a plan, may, for purposes of 

compliance with the provisions of paragraphs (b)(1) and 

(2) of this section, rely on, and act upon the basis of, 

information pertaining to the plan provided by or at the 

direction of the appointing fiduciary, if— 

(i) Such information is provided for the stated 

purpose of assisting the manager in the performance of 

his investment duties, and 
 

 

 

 

 

 

29a 

(ii) The manager does not know and has no reason 

to know that the information is incorrect. 

(c) Definitions. For purposes of this section: 

(1) The term investment duties means any duties 

imposed upon, or assumed or undertaken by, a person 

in connection with the investment of plan assets which 

make or will make such person a fiduciary of an employee benefit plan or which are performed by such 

person as a fiduciary of an employee benefit plan as 

defined in section 3(21)(A)(i) or (ii) of the Act. 

(2) The term investment course of action means any 

series or program of investments or actions related to a 

fiduciary’s performance of his investment duties. 

(3) The term plan means an employee benefit plan 

to which title I of the Act applies.