## In the



# U n ited S ta tes Co urt o f Ap p ea ls

F o rth eS e v e n th C ir cu it

N o. 11

- 2660 L I NDA W HIT E , o n b eh al fo fhe r se l fa nd a c l a s s o fp e r s o ns s i mi l a r l y s i t ua t e d, an d C HARLE NE L. R OUN DTRE E , P laint if fs -App el lants , v.
M ARS HALL & I LSLEY C OR PO RA T I ON, etal. , D efend a nts-A pp ellees.
Appeal from the United States District Court fo r the E astern Di stricto f Wisc onsin
. No . 2:1 0-cv-00 31 1-JPS

—J. P. S tadtmuel ler , Judge
.
A RG UE D S EP TE MBE R 13, 2012

— D ECI DE D A PRI L 19, 2013

Befo re M A NI ON, S YKES, a nd H A MI L T ON, C ircu it Judges. H A MI L T ON, Cir cu i t J udg e. W he n fi na nc i erJ
. Pi er po nt M or gan was as ked wh at the s toc k m ar ketwould do, h e an sw er ed , ac c or d in g to W all St re et leg en d , “ It w i ll f l uc t ua t e . ” S o met i mes i tfl uc tua t e s a l o t, a s the s po nsor ofthe re ti re m ent s avi ngs pl an i n th i s ca se und er sto od2 N o. 11

- 2660

w el l

. Thi s ca se i s about how federa l l aw appli es to such fl uc tu ations i n the value of an em p loyee stock ow ne rsh i p pl an . This case i s o ne i n a s er ies a l l eging tha t fi du ci ar i es of empl o y e e r e t i r e men t s a v i ng s pl a ns a c t e d i mpr ud e nt l y b y a l l o wi n ge mp l o y e e s t o c h o o s e t o b u y a n d h o l d a n e mplo ye r’s st ockwh i l e i t decl i ned si gni fi cantl y in pri ce. S ee, e . g. , D ud enh o efer v . F ifth Third B a nc o rp , 69 2 F
. 3d 410 ( 6th C ir. 20 12 ), petiti o n for cert. f i l ed, N o. 12-751 (De c. 14, 2012); Lanfear v. H om e D epot, Inc. , 679 F.3d 1 2 6 7 (11th Cir. 2012); Pf e i l v . S t a t e S t r e e t Ba n k & Tr u s tCo. , 671 F.3d 585 ( 6th Cir. 20 12 ); G earren v. The M cG raw -H ill C o s. , 66 0 F
. 3d 605 ( 2d C ir. 20 11 ); In reCi t igroup ER I SA Li t iga ti on , 66 2 F
. 3d 128 (2d C ir. 20 11 ); Howe l l v. M ot orol a, Inc. , 633 F. 3d 552 ( 7th C ir. 2011). Such ca ses ar e g ove rned bythe f ed er al E m plo yee Ret i r e me n tI n c o me S e c u r i t y Ac to f1 9 74 , b e t t e r kn o wn as ER I SA. 29 U .S.C. § 1001 et seq
. A s i n m osto fthes e case s, the pla i nti ff s her e a l l ege d that the pl an fi du ci ari es vi ol ate d ER I SA by co nti nuing to off erem plo yerst ock a s a n i nv e s t men to pt i on w hi l e the s t o c kp r i c e dr o pp e d, in th is c as e d u rin g t h e fin an c ial c ris is of 2 00 8-2 00 9. In the absence o fal l ega ti ons ofm i srepres entat i ons oro ther w ro ngful conduct not al l ege d here , pl ai nti ff s i n such case s unde r ERI S A must tr y to hi t a ve r y smal l an d pe rhaps non- exi ste n t tar get
. The the or y

— thatthe em plo yer and plan fid u c i ar i es vi ol ate d thei r du ty ofprudence und er ER I S A b y c o nt i nu i ng t o o ff e r e mpl o y e r s t o c k a s an i nv es tmento pti o n

— woul d r equi r e th e empl o y era nd pla n fi du ci ar i es, i n this c ase and m any s i m i l arcas es, toN o. 11

- 2660 3 vi ol ate the re ti re m ent pl an’ s gov er ni ng docum ents, w hi ch em plo yer s and pl an fi du ci ar i es ar e al so re quir ed to f ol l ow un der ERI SA. The theo ryal so seem s t o be ba se d o fte n o n the unt en ab l e pr emi se tha t empl o y er s an d pla n fi du c iar i es have a fi du ci ar y duty ei therto o utsm ar t the st ockm ar ket, wh i ch i s g ro und l ess , o r to use i nsi der info rm ati on f orth e benefi t o fem plo yee s, w hi ch w oul d vi ol ate federa l se curi ti es l aw s. Defe nd ant M ar sh al l & I l sl ey Corpor ati on ( M & IBank) o ff er ed i ts e m pl o y ee s ani ndi vi duala cc o untr et i r ement savings pl an, wh i ch w e ca l l “th e P lan .” The Pl an al l owed em plo yee s t o ch oose how to di str ibute thei r savings am ong m or e than twenty i nvest m ent fund s with di ff er en t ri ska nd r ewa r d pr o fi l es . The i nv es tment fun d s offered by the Pla n w e r e se lected by the Plan’s fi du ci ar i es. ERIS A i m poses o n a p l an’ s fi du ci ar i es a d u ty o f p ru d en c e, m ea n in g t h at th ey m u st se lec t o n ly pr ude nti nv es tmento pti o ns t o i nc l ude i n the pl an . 29 U
. S. C. § 1 104. O n e o fth e i n v e s t me n to p t i o n s i n th e P l a n wa s th e M&I S t o c kF und w hi c h c o ns i s t e d o fM& Is t o c k

. T hi s ty pe offund i s ca l l ed an Em p loy ee StockOw ners hi p Pla n or ES OP. S e e 2 9 U. S

. C

. § 1 1 0 7 ( d ) ( 6 )

. D u r i n gth e h o u si ng m ar ketco l l apse a nd subse quent m ar ket cr ash i n 200 8 an d 2009, M & I ’ s s toc k pr i ce dr opped by approxi m at ely 54 p er cent, as di d the va l ue o fem plo yee s’ invest m ents i n the M& IS t o c kF un d. The em plo yee s filed t hi s putati ve cl ass act i on under ERI S A, 2 9 U. S

. C. § 1 13 2( a) , a l l eg i ngtha t th e Pl an ’ s fi duci ar i es vi ol ate d thei r du ty ofprudence und er sect i on 1 1044 N o. 11

- 2660 by conti nuing to off erthe M & I Stock Fund as o ne o f th e opt i o ns i n the Pl ande spi te the s to ck ’ s po o r pe rform ance. I n cl ai m s of i m prudence aga i nst fi du ci ar i es of ES OP s , ma nyfe de r a l c o ur t s h a v e a pp l i e d a p r e s umpti on that the fi du ci ar i es acte d prud entl y. The di st ri ct cour t a pp l i ed thi s presu m pti on o fprudence, f ound that pl aintiff s’ a l l eg at i o ns c o ul d no t o ve r co m e i t, a nd gr anted the defendants’ m oti on to d ism i ss the c ase und erFe dera l Rul e o fCi vi l Pro cedure 12(b) ( 6) f or f ai l ure to sta te a cl ai m f orr el i ef

. Wh i t e v . M a rsha ll & Ilsley Corp
. , N os. 10

- 311, 10

- 377, 20 11 W L 24717 36 ( E.D. W i s. J une 21 , 20 11 )

. The di st r i ct co ur t di d no t reach the i ss ue o fc l as s ce r ti fi ca ti o n. Pl ai nti ff s hav e a pp eal ed. The S ecr eta ry o fLaborhas fi l ed an am i cus br i efr ega rdi ng t he pro per l ega l st an d a r d i n s u c h c a s e s , f o c u s i n gi n p a r t i c u l a r o n t he p re sum pti on o fprudence tha t we and othe r cour ts ha ve us ed i n s uchc as es . Ev enwhen w e a cce pt as t r ue pla i n tiff s’ al l ega ti ons, as we m ust when w e r evi ew a di smi ss alunde r Rul e 12 ( b) ( 6) , w e a gre e wi ththe dist ri ct c ourtthat t h e P l an fi du ci ar i es here bene fi t fro m a p re su m p tio n of p ru d en c e a n d th at t h e p lain tiffs ’ alleg ati ons do not ove rco m e that pr esum pti on. W e there

f or e a ffi rm the j ud gm ent o fthe dist ri ct c ourt
.
I. Fac t ual Al l egat i ons A

. The M & IRe t i r e m e ntPla n M & IBank sponso re d a r eti re m ent s avi ngs fund f ori ts em plo yee s ca l l ed the M & I Reti re m ent Pr ogr am . The Pl anN o. 11

- 2660 5

The Plan is a “defined contr ibution” p lan under ER ISA 1 b eca u se the em p loy ees b ear the risk s of loss and b en efit fro m g a in s o n th ei r in v es te d co n tr ib u tio n s. 2 9 U .S.C . § 1 0 0 2 (3 4 ). w as subj ect to ER I SA’s r ule s g ove rni ng em plo yee r eti re m ent s avi ngs pl ans, under w hi ch the Pl an was consi dered an Em plo yee I nd i vi du alA ccount Pl an o r EIAP because em plo yee s s el ecte d the fund s for i nvest i ng the i r savings f ro m am ong opti ons chose n by the Pl an fi du ci ar i es. 29 U
. S. C. § 1 107( d)( 3)

. U n der the Pl an, em plo yee s 1 co ul d c ho o se ho w to al l o ca te the i r i nv es tment s among th e t we n t y - t wo fu n d s i n o n e - p e r c e n ti n c r e me n t s . E mpl oye es c o ul d s hi ft th ei r ne w co nt r ibut i o ns a nd e xi st i ng i nvest m ents to diff er ent invest m ent o pti ons at any t i m e. This ar ra ngem ent was l ai d out i n the Pla n ’s govern i n gd o c u me n t
. T h e P l a n wa s i mpl e me n t e d a n d ma nag ed i n a cc o r dan ce wi ththe g o ve r ni ngdo cumentb y the Pl an’ s fi du ci ar i es. The nam ed fi du ci ar y of the pla n w as M &I Ba nk its el f, a nd the Pl anwas o ve r se enb y a n Inve st m en t C om m itt ee th at co n sis te d of se ve ra l M & I d ire cto rs , al l o fwh om ar e defendants her e. The Pl an’ s g ove rni ng doc um ent per m i tte d the Invest
m ent Com m i tte e t o se lec t the fund s that would be av ai l ab l e i n the pl an, b uti t spe ci fi ca l l y r equi r ed tha t o ne par ti cul ari nv es tmentb e o ne o fthe Pl an ’ s i nv es tment fund s

— th e M&IS t o c kF und. Pl a n § 1 6

. 0 2 ( b )

. T h e M&I St ockFund consi ste d enti re l y o fM & I ’ s co m m on s tock, apartfro m a sm al l am ount o fcas h orm oneym ar ket fund s t o m eeti m m edi ate cas h needs. This t ype o fi nvest
me n tfu n d

— o n e i nv esting p rim aril y i n th e em p loyer’ s6 N o. 11

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sto ck

— is co n sid er ed an E m p loy ee S t o c k O w n er sh ip Pl an o r ES OP unde r ERI S A. 29 U. S

. C. § 11 07 ( d) (6). The Pl an’ s g ove rni ng d ocum ent r equi re d that the M & IS toc k F u n d b e o ff e r e d i n th e P l a n a n d th a ti t i n v e s ti n M&I st oc k at a ll tim es , reg ar d les s o f an y “ re ve rs als of fort u n e.” Re g ar di ngthe pr o spe cto f“ r ever sa l s o ff o r tu ne , ” th e Pl an used st ro ng l anguage . It r ecogni zed the l i kel i hood ofsi gni fi cant decl i nes in st oc k pri ce fro m ti m e t o ti m e, but to ok a l ong- ter m vi ew and dir ecte d the Pl an fi d u c i a r i e s t o a l l o w f o r a l i g n me n to fth e i n t e r e s t s o fe mpl o y ee s an d the c o r po r at i o n: M ar sh al l & I l sl eyCo r po r at i o n, a s the se tt l o r o fthe Pl ana nd the Tr us t, he r eb y decl ar es tha t i ts i nt en t an d pur po se i n c r ea tingthe M& IF und i s to a l i g n the i nter est s o fPl an Par ti ci pants w i th M ar shal l & I l sl ey Corpor ati on. M ar shal l & I l sl ey Corp or ati on be l i eve s that i ts success a s an enti ty and the per f or m ance o f the M & IFund w i l l bo th be enhanced and fac i l i tat ed i n th e l o n gr u n b y s u c h a l i g n me n t
. A t th e s a me ti m e, M ar shal l & I l sl ey Corpor ati on r eco gni zes that th e per f o r m an ce o fa b us i ne ss fl uctua te s an d the va lu at ion of st o c k flu c tu at es . A s a re sul t, itis poss ibl e that M & I’s busi nes s and the valueof the M & I Fund could decl ines ignif

icantly (e ven t o the point whereM arshall & Ilsley C o rpo rati o n’s o ng o ing via bility com es in t o quest i on )

. Never th el es s, M ar sh al l & I l sl eyCo r po r at i o n, a s the s e t t l o r o fthe P l a n a nd T r us t, i nt e nd s a nd decl ar es that nei therthe Com m i tte e no r an y ot her Pl an fi du ci ar y s hal l have any author i ty orabi l i ty to cause th e M&IF u n d t o b e i n v e s t e d i n a n y th i n gb u tM&IN o. 11

- 2660 7
sto ck, exce pt f orl i quidi ty need s as di scusse d i n paragr aph ( b) abo ve. M ar shal l & I l sl ey Corpor ati on bel i eve s that, sho uld i t s ufferr eve rs al s o ff or tune, t heal ignmentof

t hei nt e r e s t s of

Pla n Part i cipants an d M ar s h a l l & Il s l eyC o rp o r a t i o n ma yb et h ev e ryth i ng w hich wille na bl e M a rs hall & Ils ley C orporation t o aga in pro sper . I n sum , M ar shal l & Il sle y Cor pora ti on, as se tt lor o f th e P lan an d T r u s t, h er eb y d ec lar es th at it i s i ts i nt en t an d c o m m an d tha t th er e ca n b e no change i n ci rcum sta nces orev ent ( no m a t t e r ho w dire ) w hi ch w oul d al l ow the C om m i tte e o r any o ther Pl anfi duci ar y t o s hi ft i nv estm en t o fthe M &I F und i nto i nvest m ents othe r than M & I sto ck ( except f or li qu idity nee d s as d iscus sed i n p aragrap h (b) above). P la n § 16.02(f ) (em p ha ses ad d ed ); see also § 16.02(b). Thus , the Pl an ’ s g o ve rning do cumentr equi r ed th e fi duciaries to m aintain the M & I St ock Fu nd un d er allcirc u m st an c es , “n o m at te r h ow d ire .”

B. Allegations of Im prudence Pl ai nti ff s a l l ege thatM & Iand the Pl an fi du ci ar i es br ea ch ed th ei r duty o fpr ude nc e unde r ER I SA by c o ntinui ng to o ff erthe M &I S to ckF und a s ani nv es tment opti on i n the Pl an dur ing a per i od ofsi gni fi cant decl i ne i n the m ar ketval ue o fM & Ist ock . L ike m any o ther fi na nc i ali ns ti tu ti o ns i n 2 00 8 an d 2 00 9, M & IBa nk suff er ed si gni fi cant losses i n the w ake o fthe col l apse o fthe hous i ngmar k eta nd the fi na nc i alc r i si s o fthe autum n of20 08 and fo l l ow in g. Pl ai nti ff s cl ai m that am id st thi s turm oi l, the Pl an fi du ci ar i es shoul d have8 N o. 11

- 2660 vio lat ed th e t er m s o f th e P la n , so ld th e M & I sto c k h eld by the Pl an, and re m ove d the M & IS toc k F und as one o f th e op tions in the Plan be ca u s e M & Istock w as overval ued and too r i skyan i nvest m ent forr eti re m ent s avi ngs. Acc o r di ng t o pl a i nt i ff s , M &I ’ s pr o b l e ms b e g a n w hen M & Iexpanded to o quick l y into ris ky l oans outsi de i ts f ami l i arg eo g r aph i c ar ea a nd its us ua l l o anty pes . M an y ofthes e l oans f ai l ed , wh i ch l ed to si gni fi cant ne t l oss es and cre dit -q u al i ty deter i or ati on a nd f or ced the bank to tap deepl y int o c ap i talr ese rv es. Obser ver s a nd anal yst s re cogni zed that M & I w as i n poor fi nancial c ond i ti on a tth e e n d o f2 0 0 8
. T h e y r e p e a t e d l y d o w n g r a d e d M&I bo nds a nd st ock be ca us e o fthe po o r qua l i tyo fthe l o an s i n M &I ’ s p o r t f o l i o . P l a i n t i ff s a l l e g e th a tth e s e p r o b l e ms c au se d th e p ric e o f M & I sto c k t o d ro p d ra m at ica lly an d “c re at ed d ire fin an c ial c irc u m st an c es ” th at w o u ld i nevi tabl y r es u lt i n si gni fi cant l oss es to pla n part i ci pants, C om p laint ¶ 143 , o r at l eas t incre ase the ri ski ness of the invest m ent t o i ntol er abl e l eve l s. Com pla i nt ¶ 75. The Com pla i nt i denti fi es seve ra l as ses sm ents of M & I ’ s financi alco nd i ti on that pl ai nti ff s a l l ege i nd i cate d the r i ski ness ofM & I ’ s s to c k: i n 200 8 M & I ’ s s toc k was d o w n gr ad ed by fou r m ajor in ve st m en t b an ks ; in N ove m ber20 08 M & Ir ecei ved federa l fu nd s a s par t o f th e T r o ub l e d A s s e tR e l i e fP r o g r a m ( T AR P ) ; i n D e c e mber20 08 A ud i t Integr i ty i denti fi ed M & Ias a “ver y r i sky co m pan y ; ” byApri l 2 00 9 si x pe r cento fM &I ’ s l o an s w ere non p erform ing , a n d on A ug us t 14, 2009 Bloom berg N ew s no ted thatM & Iwas one ofse ver albank s with at l eas t fi ve p er cent “to xi c” l oans and quoted a fi nanceN o. 11

- 2660 9

U nlik e pl ai nt i ff s s ui ng f or s ec ur i t i es fra ud, pl ai nt i ff s c an s ue 2 und er ER ISA even ifthe y si m ply held thei r i nvestm ents
. There i s n o p u r c h a s e o r s a l e r e q u i r e me n tf o r fi d u c i a r y d u t y c l a i ms under E RI S A. Co m pa r e 1 5 U. S

. C. § 7 8 j a nd BlueC hip St amps v. M an o r D ru g S tore s , 4 2 1 U. S

. 7 2 3 ( 1 9 7 5 ) , wi th 2 9 U. S

. C. §§ 1104( a) ( 1) , 1109. expertas sa yi ng tha t a t fi ve perce nt to xi ci ty, “chance s are regu lators have them classified as be ing in un safe an d un s o u n d c o n d i t i o n ; ” o n S e p t e mb e r 1 4 , 2 0 0 9 the Pi ttsburgh Tribu n e Rev i ew o pined that“the bi gge st l ose r i n the S&P 50 0 thi s y earis M ar shal l & I l sl ey Cor p. ; ” an d b y Apri l 2 01 0 M &I r ep orted i ts s i xth c o nsecuti ve quarte r ofl oss . P lain tiff s s ou gh t c om p en sa tio n for los s o f va lu e in thei r re ti re m ent s avi ngs duri ng the cl ass period fro m N ove m ber10 , 2006 t o A pri l 21 , 20 10. I n the dist ri ct 2 cour t, pl ai nti ffs all ege d and arg ued that the fi du ci ar i es f ai l ed to pro vi de benefi ci ar i es w i th accurate i nfo rm ati on a b out the c om pany’s fi nanci alco nd i ti on, and that M & I fa i l ed to m on ito r ot h er fid u c iar ies ad eq u at ely an d f ai l ed to pr o vi de them wi tha cc ur at e i nf o r m at i o n. P lain tiffs h av e n otp u rs u ed th os e t h eo rie s o n a p p ea l. P lai nti ff s f ocus al l thei r att enti on o n appeal o n their cl ai m f orbr each ofthe du ty ofprudence. Fr om t he be gi nning ofthe cl ass per i od to the end of the per i od, M & Ist ockdro pp ed 54 perce nt, fro m $4 6. 92 pe r sh ar e t o an adj usted va l ue o f$2 1. 43 per shar e. A pp el l ee Supp. A pp . 11

- 30. Thi s pri ce i s a dj usted to i ncl ud e b o th the v a l ue o f M &I s t o c k a nd the v a l ue o f10 N o. 11

- 2660

W he n M e t a va nt e s pl i t off f r om M &I on Nove m be r 2 , 2007, 3 sha re h o lders rec ei ved

. 333 s hares ofM etavante st ock f or eac h s har e ofM &I s t oc k. W he n M et ava nt e w as ac qui re d by FI S o n O ct ober 1, 2009, M etavante share h o ld ers rec ei ved 1. 35 s hares ofFIS s tock f o r each s hare ofM etavante st ock. These cal culat i ons as s um e thatM &I s har eh ol der s m ai nt ai ne d owner s hi p of the tr ansferre d stoc k through b oth s pinoff s, as em pl o yees were pe rm i t t ed t o r et ai n the i r M et ava nt e s t oc k wheni ts pun of f from M & I. The ad j uste d M & I pri ce incl ud es the nom inal p rice o f M & I itselfp lus th e ad d ed v alu e of the M etav an te and the n FIS s tock. See Supp

. Ap p. 30. the s t o c ko ft wo s pi no ffe nt i ti es

— M etav an te an d FI S

— w hose st ock M & Ishar ehol ders w er e per m i tte d to re tai n w hen thos e s toc ks spun offfro m M & I
. The Pl an w as als o a m en d ed to allow th e M & I Sto c k F u n d to h old thos e tw o sto cks. Thu s, w hi l e M & I ’ s nom i nal sto ck p ric e at the e nd o fthe propos ed cl ass per i od w as $9. 94, th e pa rties agree th a t th e total value of a sh areh older’s i nvest m en ts f ro m o ne shar e o fM & Ist ocksho uld be adjust ed to i ncl ud e the co nver ted spi n-o ffshar es, wh i ch wa s $ 2 1

. 4 3 a tthe e nd o fthe c l a s s p e r i o d. 3 Du ri ng the cl ass per i od, M & Ist ockbo tt om ed out at an unad j usted nom in al p ri ce o f$3

. 11 per shar e o n M ar ch 5, 20 09
. Id

. I n a de ala nno unc ed Decem ber 17, 2 01 0, Ba nk of M ontr eal ( BM O) agr eed to acqui re M & I Bank for $7. 75 per share , an approxi m ate 33 per cent prem i um o ver M & I ’ s no m i nal cl osing st ockpri ce o n Decem ber16 , 2010 o f$5

. 79.N o. 11

- 2660 11 II. A nalysis We r e v i e w deno vo a di s t r i c t c o ur t ’ s g r a nt o fa m oti on to d ism iss un d er Fed eral Ru le ofCivil Proc ed ure 12(b)( 6), a nd we t a k e a l l f a c t ua l a l l e g a t i o ns a s t r ue a nd draw all re as on ab le in fer en c es in fa vo r of t h e p la in tiffs

. Pugh v. Tr i b uneCo. , 52 1 F

. 3d 686 ( 7th Ci r. 20 08)

. Court s ca n ta k e j ud ici al no ti ce o fpub l i c st o ckpr i ce quo ta ti o ns w i thout conve rt i n g a m oti on t o dism i ss i nto one f or su m m ar y j u d gm en t. E.g
. , i d. a t 69 1 n. 2. W e ca n a l so c o nsi der ERI S A pl an do cument s th at wer e at ta ch ed to th e co m pl ainto r r efer en ced in i t wi th o utc o nv er tingthe m oti on t o one f orsum m ar y j ud gm ent. S ee VentureAssoci

at e s Corp. v . Z e ni t h Data Sys
. Corp. , 98 7 F
. 2d 429, 43 1 ( 7th C ir. 1993).

A. F i duc i ary Duti e s U nde rERISA ER I SA’s pr i m ar y g oali s t o prot ect em plo yee i nter est s in pensi ons, r eti re m ent s avi ngs, and other benefi t pl ans. 29 U .S.C . § 10 01 (b ); Shaw v. D el ta Air Lines, Inc. , 463 U

. S. 85, 90 ( 1983 ) ; ( “ERIS A i s a co m prehensi ve st atute desig n ed to p ro m o t e t h e in te re st s o f em p loy ee s a n d th eir b e n e fi c i a r i e s i n e mp l o y e e b e n e fi tp l a ns . ” )

. T o a c c o mpl i sh t hi s g o al , E R I S A i mpo se s dut i es o n t he fi du c i a r i e s who m a na g e p l a ns . T he s e du t i e s i nc l ud e dut i es t o i nv es t pr ude nt l y, t o c o m pl y wi thpl ando cumen t s , a nd to d i ver si f y i nvest m ents
. 2 9 U. S

. C. § 11 04 (a)( 1)( B) , ( C) , ( D)

. Thi s l as t dut y, t o di ve r si fy, r uns counterto the pu rpos e o fESOPs, w h ich by defi ni ti on concent ra te i nvest m en t i n a s i ngl e e m plo yerst ock

. S ee12 N o. 11

- 2660 St e i nm an v . H icks , 3 52 F
. 3d 11 01 , 1 10 4 ( 7th Ci r . 2 00 3)

. But Congre ss f avo rs ESOPs as a pol i cy m att erbec ause they provi de a w ay f or em plo yer s to al ign em p l oye e and m anage m ent inter est s. S ee Tax Ref or m A c t o f19 76, Pub. L. N o. 94

- 455, § 803( h), 90 S tat
. 15 20, 15 90 ( 1976 ) ( noti ng Congr ess ’ s i nter esti n “enco urag i ng em plo yee sto c k ow ners hi p plans as a bo l d and innov ati ve m etho d o fs tr en g th en i ngthe fr ee pr i va te e nt er pr i se s y st em”)

. To prese rv e a nd enco urag e ESOPs, Congr ess exem pted fi duci ar i es o fE SO Ps fr o m the duty t o di ve r si fy a nd li m ited th e d ut y of p rud en ce so as n ot t o r e q u ire d iversification for su ch plan s. 29 U
. S. C

. § 1104(a)(2)

. The other ER I SA d uti es

— to m an ag e r et i r ement p lans prudentlyand to f ol l ow p l an docum en ts

— st ill ap p ly to ESOP fi du ci ar ies and are r el evanther e. S ecti on 1 104 i s e nti tl ed “Prudent m an st andard ofcar e. ” I t r equi re s fi du ci ar i es to disc harg e thei r du ti es f orthe pu rpos es ofpro vi ding benefi ts to parti ci pants and t h ei r benefi ci ar i es, 29 U
. S. C. § 1 10 4(a) ( 1) ( A ) ( i ) , and to act“with th e c are, skil l, pru d en ce, and dili gen ce u nd er the circum stance s th enpr ev ai l i ngtha t a pr ude ntman a ct i ng in a like ca p ac ity an d fam iliar w ith su c h m at te rs w ou ld use in t h e c onduct ofan e nter pri se ofa l i ke chara cter and w i th l i ke ai m s, ” § 11 04 ( a) ( 1) ( B). Th is d u ty r equi re s fi du ci ar i es to sel ect onl y pr ud ent invest m en ts f oran em p loy ee ind ivid u a l ac c ou n t p lan , H owel l v. M ot or ol a, Inc. , 6 33 F
. 3d 55 2, 5 67( 7th C ir. 2 01 1) , tho ug h wi th o ut p ro vi ding speci fi c g uidance as to w hat i t m eans f oran invest m en t op tion to be p rud en t. C om p li catin g m atters fu rt h er , sec tio n 11 04 a l s o r eq u ire s fid u c iar ies to ac t “ in acco rd ance with the docum ents and i nstr um ents gov -N o. 11

- 2660 13

T his s t a tu tor y d u ty o rig ina tes in tru st law , w hich requ ires a 4 tr uste e t o acti n accor d w ith the te rm s o fthe tr ust. Restat em en t( Thi rd) ofT ru s t s § 91 ( 20 07 ) ; s ee al s o L an fear v. H om e D ep ot, Inc. , 67 9 F
. 3d 1 26 7, 12 80

- 81 ( 11 th Ci r. 20 12 ) ( c i t i ng Re s t at em en t § 91 i n an alyzi ng chall enge to ESO P fiduciari es )

. Trust law se rves a s th e b asi s f or m uch ofER ISA, s ee F i res tone Ti re & R u bberC o. v. Bruch , 489 U.S

. 101, 110 ( 1989) , though “trustl aw d o e s n o tte l l th e e n t i r e s t o r y ,” b e c a u se , “ [a ]ft e r a l l , E R I S A ’s stan d ard s and p ro ced u ral p ro tection s pa rtly reflect a con g ress i on al d eter m i nat i on thatthe c om m on l aw oft ru s t s di d not of f er c o m p le tel y sat is f act ory protect ion. ” V ar i ty C orp. v. H o we, 51 6 U .S. 4 8 9 , 49 7(19 9 6 ). erni ngthe pl ani ns o f ar a s s uchdo cument s an d i ns tr um ents ar e consi ste nt w i th the provi si ons of th is s ubc ha pt e r a nd sub c ha pt e r I I Io fthi s c ha pt e r . ” 2 9 U. S

. C. § 1104 (a)( 1)(D). 4

B
. Fi duc i ary Duti e s f

orEm pl oye eSt oc k Ow ne rs hip Pl ans ESOP fi du ci ar i es m ust com plywith the st atuto ryduti es both to ac t p rud en tly and to com p ly w ith th e plan ’s g o ve r ni ngdo cument s unl es s th e do cum en ts ar e i nc o nsi st en t wi thERI S A. I n the c o nt ex t o fES OPs , pl ando cum ents and the duty o fprudence m ay poi nt fi du ci ar i es i n di ff er en t di r ec ti o ns . As h er e, ES OPs ’ g o ve r ni ngdo cum en ts ty p ica lly d ire c t fid u c iar ie s t o in ve st p rim ar ily in e mpl o y e rs t o c k, c r e a t i nga du t y u nd e r s e c t i o n 1 1 0 4 ( a ) ( 1 ) ( D) to f o l l o w the pl andoc um en ts a nd t o mai nt ain tha t i nvest m en t or inv estm en t op tion. B ut i f th e com p an y’s vi abi l i ty i s i n j eopar dy, the em plo yer’ s s toc k m ay not be14 N o. 11

- 2660

a pr ude nti nv es tment
. I n su chc as es , e m pl o y ee s m i g ht ar gue that the st atuto ryduty o fprudence r equi re s a fi du ci ar y t o re m ove the em plo yerst ockfund as an o pti o n f o r e m pl o y ee i nv es tment s o r t o r edi r ec t th atfund to o therst ock s. W hen an e m plo yeri s i n poorfi nanci al cond itio n and i ts sto ck pri ce i s f al l i ng, the m andates to f o l l o w pl ando cument s an d t o a ctpr ude nt l y might thus pullfi du ci ar i es i n two opposit e d i re cti ons: bo th to kee p the e m plo yerst ocko pti on a n d t o rem ove i t. Thi s, at l eas t, i s t h e th eo ryo n w hi ch so m any ESOP cas es have been bui l t. Pl aint i ff s al leg e th atthe r e was s ucha c o nfl i cthe r e. The M & IPl an fi du ci ar i es kept th e M & I S toc k F und as an o p t i on th ro u gh ou t M & I sto c k’s d es c en t u n til th e u ltim ate acqu isi tion by th e B an k of M ont real. T h e p laint iffs cl ai m tha t i n do i ngs o , the fi du cia r i es v i o l at ed th e dut y o fpr ude nc e. B ut i fthe fi duci ar i es ha d do ne the o pp o s i te

— rem ove d the fund wh en M & I ’ s s toc k p r i c e wa s l o w

— the p lain ti ff s co uld have cl ai m ed that the s am e fi du ci ar ies w er e l i abl e f orthe gai ns em plo yee s mi s s e d wh e n M &I ’ s s t o c kp r i c e s ub s e qu e nt l y i nc r e a s e d. I n that case , the cl ai m would be that the fi du ci ar i es vi ol at ed th e P l a n ’ s g o v e r n i n gd o c u me n t s b y r e mo v i n gthe M & IS toc k F und as an inv es tm ent o pti on. Fo r exam ple , afterM & Ist ockr eached i ts l owest poi nt i n the propos ed cl ass per i od, i t increa se d in va l ue by m or e than 150 pe r c e nt b y the e nd o f the c l a s s p e r i o d

— fro m an a dj usted l o w pr i c e o f$ 8
. 4 6 t o a n a dj us t e d p r i c e o f$ 2 1

. 43

— a ga in that w as gener ally in l i ne with the b ro ader m ar ketr eco ve r y . I fthe fi d uc ia r i es ha d c ho se n t o v i o l at e th e t e r ms o ft h e Pl a n a n d ha d f o r c e d a s a l e o fe mpl o y e e s ’ M&IN o. 11

- 2660 15
sto ck at the l owest poi nt , the e m plo yee s would have los t ou t o n the l ate r i ncre ase i n val ue and w oul d seem to have had vi ab le c l ai m s under ER I SA fo r the fi du ci ar i es’ f ai l ure to com plywith the te rm s o fthe Pl an docum ent. T o t h e e x te n t t h at co u rt s a llow liab ility for e ith er foll o wi ng p la n do cument s o r de par tingfr o m the m , fi duci ar i es coul d be li abl e ei therf orthe com pany st ock ’ s poo r perf or m ance i ftheyco nti nue to i nvesti n em plo yer sto ck, o r f orm i ssi ng the o pp or tuni ty to benefit fro m g o o d p e r f o r man ce i fthe y do n o t
. T hi s l o g i c p ut s ES OP pla n fi du ci ar i es i n a pr ecar i ous pos i ti on that th re at ens t o m ake them guar antor s o fgo od i nvest m ent per f or m ance. W e ha ve r efer r ed to thi s pr ec ar ious po si ti o n a s si tt i ng on a “r azo r’ s e dge. ” Ar ms t r o n gv . L a S a l l eBa n kNa t i o nal A ss ’n , 4 46 F
. 3d 72 8, 733 (7th Ci r . 2 00 6)

. S ucha hi g h e xposure to l i ti gat i on r i sks i n ei therd irecti on co uld di sc o u rage em p loyers from offering E SO Ps , w hich are f avo re d by Congr ess , o r eve n fr om o ff er i ng em plo yee re ti re m ent s avi ngs pl ans a lto ge ther

. S ee gener al l y Va ri ty C orp . v . Howe, 5 16 U. S

. 4 89 , 4 97( 19 96 ) ( co ur ts i nt erpreting ERI SA m us t co nsi der s eve ra l go al s o fCongr ess , i ncl ud i ng notundu l y di scouraging em plo yer s fro m offering w elf a r e ben efi t plan s in the fir st p lace); H oc ke t tv. Su n Co. , 109 F. 3d 1515 , 1522 , ( 10th Cir . 1 997) (sam e for retirem en t plan s).

C

. The M oe nc h Pr e s um pt i on Courts have tak en thi s pre car i ous po sit i on i nto account w hen deci ding how to applyERIS A ’ s duty o f prudence to ESOPs w h en the em plo yer ’ s s toc k pr i ce16 N o. 11

- 2660 drops s i gni fi cantl y e nou gh to pro vok e l i ti gat i on. Beginn i ngwi th M oe nc h v

. Rob e r t s on i n the Thir d C irc u it and conti nuing i n m any c ase s th at f ol l owed , federa l cour ts have tem pered the r i sk ofl i ab ilityf orfi du ci ar i es i n thes e ci rcum sta nces by applying a presum pti on that th e fi duci ar i es a ct ed pr ude nt l y . I n M o en ch , the T hird Ci r c ui tc o ns i de r e d wh e the r fi du c i a r i e s o fa n ES OP vio lat ed thei r du ty ofprudence byco nti nuing to i nvest e mp l o y e e fu n d s i n c o mp a n y s t o c kth r o u g h o u tth e c o mpa n y’ s desce nt to w ar d eventualbank ruptcy. 62 F. 3d 553 (3d Cir. 1995). M oench i nvol ved a type ofr eti re m ent s avin gs pla n di ff er en t f r o m the o ne he r e. I n M oench , the ESOP di d not gi ve em plo yee s a choi ce a m ong diff er ent invest m ents. I t w as instea d a stan d -alon e fun d , and i ts p rim ary p urpose w as to provi de em p l oye es the o pp or tuni ty to i nv es t i n e m p lo y ers to ck

. The fund r equi r ed th e fi duci ar i es t o i nv es t th e fund in e m pl o y ers to ck, a nd pla i nti ff s a l l ege d i t was i m p ru d en t to conti nue to i nvest that fund i n em plo yerstoc k. In the cas e o fM & IBank, by co nt r as t, the e m p lo y ers to ckfund was j us t o ne o fmany opti ons avai l abl e f or em plo yee s to choos e am ong in their re ti re m ent s avi ngs pl an, and pla i nti ff s a l l ege d that fi du ci ar i es bre ached thei r du ty ofp rud ence by m er ely off er i ng the ESOP as o ne o fthe fund s. Court s f a c i n gp r u d e n c e c l a i ms w h e r e E S O P s a l l o w s u c h e mpl o y e e c ho i c e s i mi l a r l y a pp l y the M o ench ’ s pr es um pti o n. Se e Lanfear v. H om e D epot, Inc. , 67 9 F
. 3d 1267( 11th C ir. 2012); In re C i t igroup ER I SA Li t igat i on , 66 2 F
. 3d 128 ( 2 d C i r . 2 0 1 1 )

. I n v i e w o fth e c h o i c e s av a i l a b l e t o e mplo yee s, the re aso ns supporting the M oe nc h pr e s umpti on s eem to applywith e ven m or e f or ce in such cas es.N o. 11

- 2660 17 T h e c o u r t i n M oe nc h ackno w l edged the tensi on i nhe r en t be twe enERISA’ s dut y o fpr ude nc e an d the ESOP ’ s di re cti on t o i nvesti n em plo yerst ock

. The M oench cour t hel d that pl an l anguage di re cti n g th e fund to be invest ed pri m ar i l y in em plo yerst ockdi d not nec essar ily do o m a pl aint i ff’ s cl ai m tha t th e fi duci ar y b r ea ch ed th e du t y o fp r ud e nc e b y c o nt i nu i ng t o i nv e s ti n i t
. I ns t e a d, th e co ur t at tem p ted to b al an ce the po te nt i al l y c o nfl i ct i ngdi r ec ti o ns b y g i vingfi duci ar i es mana g i ngES OPs a de g r e e o fde f e r e nc e tha ti s h i g h b utn o tco m ple te. The cour t hel d that
an E SO P fid u c iar y w h o in ve st s th e ass e t s in em p loy er s t o c k is en tit led to a p re su m p tio n th at it ac te d co n sis te n tly w ith E R ISA by virt u e o f th at d ec isi on. H owever, t h e pl ai nti ffm ay ove rco m e that pr esum pti on byes tabl i shi ng tha t the fi du ci ar y abused its d isc re tio n by inv es tin g in em p loy er se c u rit ies
. 62 F. 3d at 571. Ad di ngmor e spe ci fi c co nt en t to thi s r ea so ni ng, the M oe nc h co ur t ex pl aine d tha t a fi duci ar y w ou ld be f o und to h a ve ab u se d its d isc re tio n by co n tin u in g t o p er m it invest m en t in the em p loyer’ s s t o ck on ly if“the ER I SA fi duci ar y co ul d no t ha ve r ea so nabl y be l i ev ed th at con tin u ed ad h er en c e t o t h e E SO P ’s d ire c tio n w as in k ee pi ngwi ththe s et tl o r ’ s ex pec ta ti o ns ofho w a pr ude nt tr u st e e w ou ld op er at e.” Id

. Th us , un d er M oench , co urts pres ume tha twh e r e p l a n l a ngua g e di r e c t s fi du c i a r i es to off erem plo yerst ock, an ESOP fi d u c i ar y’ s deci si on t o co nt i nue o ff er i nge m pl o y ers to cki s pr ude ntunl es s th e pl aint i ff s show tha t, de spi te the i ns tr uct i o ns i n the pl an,18 N o. 11

- 2660 the c i rcum sta nces w er e s o com pel l i n g that no r easo n ab le fid u c iar ies w ou ld h av e t h ou gh t t h ey sh ou ld co nt i nue t o o ffer th e s to cka s di r ec te d i n the pl an . The pla i nt iff m ust s how that, “ ‘ owing to ci rcum sta nces n otkn ow n to th e s et tlo r an d n ota n t i c ip at ed by h im [ the mak i ng o f s uc h i nv e s t men t ] wo ul d de f e a t or substa nti al l y i m pai r the a ccom pli shm en t ofthe pu rpos es of the t rust
. ’ ” Id. , quoti ng Rest ate m ent ( Se cond) Trusts § 2 27 com m ent g
. This gener alapproa ch, kno w n as the “ M oench p r e s umpti on, ” has bee n w i del y a dopted by o therci rcui ts i n case s al l eging i m prudence by ei theri nvest i ng i n an ESOP or al l owing em plo yee s to choos e to do so

. S ee L a n f e a rv . Ho me D epot, Inc. , 67 9 F.3d 12 67, 12 80 -81 (11 th C ir. 20 1 2 ) (c o llec tin g c a s es ); In reCi t igroup ER I SA Li t igat i on , 66 2 F
. 3d 128, 13 8 ( 2d Cir

. 20 11) ( adopti ng M oench pre su m pti on because “i t provi des the bestacc om m odati on be tw een th e co m pet i ng ERI S A v al ue s o f pr o te ct ing r et i r ement asset s and enc ou raging inves tm en t in e m p loyer stock”); Q ua n v . Co m pu terS c i e n c es C o rp . , 62 3 F
. 3d 870, 88 1 ( 9th Cir

. 20 10) ( “i fpro perl y for m ula ted, the M oench p r esu mpt i o n c a n s t r i k e th e a p p r o p r i a t e b a l a n c e b e t we e n th e e mplo yee o w ners hi p pu rpos e o fESOPs an d o th erEI A Ps, and ER I SA’s g oalo fensur i ng prop erm anage m ent o f su c h p lan s” ); K irsc hbaum v. R el ia nt Energy, Inc. , 52 6 F

. 3d 24 3, 254 ( 5th Ci r. 20 08) ( “The M oench pre sum pti on l ogi cal l y a pp l i es to any a l l ega ti ons offi du ci ar y d uty br ea chf or fai l ur e to di ve sta n EI AP orES OP o fc o m pan y stock

. ”). Courts applying the M o e nc h p re su m p tio n h av e h eld that pla i nti ff s s eek i ng to o ver com e the p re sum pti onN o. 11

- 2660 19

m ust a l l ege and ul ti m ate l y prove thatthe com pany f aced “im p en d in g colla p se ” or “d ire c irc u m st an c es ” th a t co u ld not have been f or ese en bythe f ounder o fthe pla n. S ee, e . g. , Cit igroup , 66 2 F
. 3d at 140; Q uan , 62 3 F
. 3d at 882 (“p lain tiffs m u st th er efo re m ak e alleg at ion s th at ‘c lea rly i m pl i ca te [ ] the co m pan y ’ s vi ab i l i tya s ano ng o i ngc o nc er n ’ .

. . ”); Kirs ch b aum , 5 26 F
. 3d at2 55

- 56 ( affi r m i ng sum m ar y j ud gm ent f or defe nd ant w here n o evi dence sh ow ed that com p an y’s “viabil ity as a goin g conc ern w as eve r thre ate ned, northat[ i ts] st ock w as i n danger ofbec om i ng es senti al l y w or thl ess ”)

. A si gni fi cant dec l i n e in st oc k p ric e is n oten ou gh , un les s p er h ap s itis c o mbi ne d wi th o the r e v i de nc e o fi mpe nd i ngc o l l apse, m i sm anage m en t, o r i nter nal co nfl i cts ofi nter est
. S ee Q uan , 62 3 F
. 3d at 884 ( “ ‘ [ m ] ere st oc k fl uctuati ons, ev en th o se tha t tr en d do wnw ar d s i g ni fi ca nt l y, a r e insu ffi ci en t to e s t a b l i s h th e r e q u i s i t e i mpr u d e n c e t o r e b u tthe M oench pre sum pti on’ ”) , quoti n g Wright v. O regon M et all urgi ca l Corp. , 3 60 F. 3d 1090 , 10 99 ( 9th Ci r. 20 04) ; se e a l s o M o en ch , 62 F. 3d at 572 (vacat ing gran t of su m m ary j u d g me n tf o r d e f e nd a n t s w h e r e s t o c kd r o p w a s a c c o mpanie d by i n sider knowle dge o fi m pend i ng co l l apse and i nsi der confl i cts ofi nter est, and re m anding f or furth er proc eed ings in li gh t of p resu m p tion of pru d en ce). Ou r c irc u i t has used the M oench p re su m p tio n in d e c i d i n gi mpr u d e n c e cl a i ms a g a i n s tE S O P a n d E I AP fi du ciaries
. I n H ow el l v. M otorola , Inc. , 63 3 F
. 3d 552 ( 7th Cir . 2 01 1), we consi dered wh etherfi du ci ar i es ofan EIAP acted p ru dentl y in continuing to off erem plo yer st o cka s o ne of e i g hti nv es tmento pti o ns i n the pl an . I n a ffi r m i ngs um m ar y j udg m en t f o r the d efenda ntfi du-20 N o. 11

- 2660 ci ar i es, w e a cknowle dged the M oench pre sum pti on f ortr adit i onalESOPs and noted that the defendants’ deci si on t o kee p com pany st ockas o ne op tio n “m ust be e val u ate d against that ba ckdro p. ” Id . at 5 68 . In A rm str ong v. La Sal l eBank, 4 46 F
. 3d 72 8 ( 7th Ci r . 2 006), w e re vi ew ed an ESOP tr ustee ’ s deci si on d efer enti al l y, noti ng tha t a l though w e typi cal l y do not defe r to fi du ci ar i es unde r ERI S A, “ a dec i si o n tha t i nv o l ve s a ba l an ci ng ofco m peti ng i nter est s under condi ti on s ofuncer tai nty re quir es an exer ci se ofdi scr eti on, and th e stand ar d of j ud i ci alr evi ew o fdi scr et ionar y j ud gm ents i s abuse o f disc re ti on. ” Id. at 733. I n tha t ca se, tho ugh, we re ver sed sum m ar y j ud g men ti n f a v o r o fthe t r us t e e o fa n ES OP wh o s e s t o c kw a s n o tp u b l i c l y t r a d e d a n d w h o s e e mpl oyees di d no t ha ve c ho i ce s ab o uti nv es tingi n the ES OP. The r e wer e g en uine i ss ue s o ff ac t co nc erni ng w hetherthe fi du ci ar y a ctual l y e xerci sed i ts disc re ti on i n tak i ng the act i ons at i ssue. W e hav e s ugges ted thatpl ai nti ff s i n E SO P case s und erERIS A can ove rco m e the M oe nc h presu m p tion of prudence by sh ow ing that fi du ci ar i es’ act i ons cre ate d ex c es siv e a n d u n re as on ab le ris k for em p loy ee s, giv en all th e r el evantc i r cumst an ce s, i n a ddi ti o n t o the s ho wi ng of“di re ci rcum sta nces” or“im p ending col l apse” re cog ni ze d b y o th erc i r cui ts
. I n t wo case s addr es sing p r u d e n c e c h alle n ge s t o t h e m an ag em en t o f sin gle ES OP funds ( no t EI APs o ff er i nge m pl o y ers to cka s o ne o pti o n, a s he r e) , we emphas i zed th e r el ev an ce o fthe am ou n t o f risk th e fid u c iar ies im p os ed u p on th e p ar tic ipan ts
. I n St e i nm an v. H i cks , 352 F .3 d 1 101 (7th Cir. 2003), we a ffi r me d s u mma r y j u d g me n tf o r fi d u c i a r i e s . WeN o. 11

- 2660 21 hy p oth esized , thou gh, that pru d en ce m ight requ ire f i d u c i a r i e s t o d i v e r s i fy e m p l o y e r s t o c kfu n d s i n c i r c u msta nces prese nti ng unusual l y s eve re fi nanci alr i sks to p articipan ts: for ex am p le, i f a ll plan p articipan ts w ere cl ose to r eti re m ent, part i ci pants hel d m osto fthei r retir em en t s av in gs in t h e E SO P , all fun d s w er e in ve st ed in the e m pl o y ers to ck, a nd the e m pl o y er ’ s st o ckwas c o nver ted i nto anothe r com pany’s st ock w i th gr eat er vo lat ility an d ba n kr u p tc y ris k. Id. at11 06. I n Su m m ers v . S t at eSt r e e tBank & Trus tCo. , 45 3 F
. 3d 404 ( 7th Ci r . 20 06 ) , we ag ain affi r m ed su m m ar y j ud g m en t f or fi du ci ar i es of an ESOP after the com p an y (Un i ted Air l i ne s) went i nt o b an k r upt cy . W e r ea so ne d tha t th e d u ty to ab an d on a p re fer en c e fo r em p loy er st oc k is base d on how m uch ri sk the e m plo ye r’s si tuati on i m poses o n the em plo yee s. W hetherr i sk i s e xcessi ve wo u l d d e pe nd o n “ th e a mo u n ta n d c h a r a c t e r o fth e e mplo yee s’ o theras set s. ” Id. a t 41 1. I n H ow el l , we extended thi s r i sk anal ysi s t o a chal l enge to the offer i ng o fan ES OP i n a n EI AP, no tingtha t wher e se ve r alo th eri nve st m ent o pti o ns wer e av ai l ab l e to pa r ti ci pan ts , “ no parti ci pant’s r eti re m ent por tf ol i o coul d be hel d hosta ge to [ the c om pany’s ] f or tunes. ” 6 33 F. 3d at 569. I n th is case, w e again follow the reaso nin g of M oench an d i ts pr o g en y . W i thi ne vi tabl e fl uctua ti o ns i n the st oc k m ar ke t, E R ISA ’s s im u lt a n e o u s d em an d s t o c om p ly w ith p lan d oc u m en ts an d to ex er c ise p ru d en c e in choos i ng inv estm ent o pti ons f orpl an part i ci pants ca n pl a c e fi du c i a r i e s o n a r a z o r ’ s e dg e . I fES OP s a r e to fu l f i l l th e i r p u r p o s e s , fi d u c i a r i e s w h o i n v e s ti n e m-22 N o. 11

- 2660 plo yerst ock, o r w ho a l l ow em plo yees to choos e t o i nvest in it, in com pli ance with the ter m s o fthe pla n need subst an ti alpr o tec ti o n fr o m l i ab i l i tyf o r do i ngs o . W i th o ut thi s s hi el d, the duty ofpruden c e w oul d l eave fi du ci ar i es e x p osed to l iabil ity based on 20-20 h ind sight for m ere sw i ngs in the m ar ke t o r othe r f or ese eabl e ci rcum sta nces in w hich reason able fi d uc iari es an d o th er i nv estors co ul d e as i l y di sa g r ee abo utthe b et te r c o ur se o fa ct i o n. Thi s po t e nt i a l c o nfl i c t f o r ES OP fi du c i a r i e s l e a ds us to aff or d them si gni fi cant defer ence w hen thei r prudence i s chal l enged f orco m ply i ng with pla n re q uir em ents. I n the abs en ce of so m e o th ers o r t o fwro ng do i ng, no l o ng er al l eg ed he r e, the s ta nda r d f o r makinga s ho wi ng o f i mpr u d e n c e b y fi d u c i a r i e s o f a n E S O P o r EI AP shoul d be hi gh. Th e fi du ci ar i es’ r ol e a t the i nter sect i on o fthe dut i es t o a ctpr ude nt l y a nd t o f o l l o w pl ando cum ents e xp o s e s the m t o l i a b i l i t y f o r e i the r f o l l o wi ngo r not f ol l owing pla n dir ecti ons i n case s l i ke thi s. P lai nti ff s a nd the Se cre tar y o fLaborurg e us not to apply a pre sum pti on o fprudence her e o r, i n the al ter nati ve, to m ake i t e asi erf orpl ain tiffs to o ver com e the pre

sum pti on e i therby r el ax in g the s tandard r equi re d to ov er c om e itor b y t re at in g t h e p re su m p tio n as a n ev identi ar y b urden ra therthan a pleading re quir em ent. W e decl i ne to adopt these posi ti ons. A s w e hav e e xplai ned, the M oench pre sum pti on is appropri ate in thi s co ntext, wh er e the dual r equi re m ents o fE R I S A

— to c om p ly w i th pl an l anguage and to act w i th prudence

— thr eat en t o p lace ESOP fi du ci ar i es on a r azo r’ s e d ge . As to i ts appli cati on a t the pl eadi ng st age ,N o. 11

- 2660 23 th e pr es um pti o n o fpr ude nc e is no t ane vi den ti ar y s ta ndar d b uta s ubs ta nt i ve l eg als ta nda r d o fl i ab il i tya nd co nduc t. Thu s, we ag r ee wi th th e S ec o nd, Thi r d, a nd Ele venth Ci rcui ts that a cl ai m a gainstESOP fi du ci ar i es al l eging a vi ol ati on o fthe du ty ofprudence m ay be di sm i sse d at the pl eadi ng st age i fthe pla i nti ff s do not m ake al l ega ti ons suffi ci ent t o ove rc om e the pre sum pti on of prudence. S ee La nfea r v. Ho m e D epo t, Inc., 67 9 F
. 3d 1267, 12 81 ( 11th Cir . 2 012) ( “The M oe nc h sta nd ar d of revie w o ffi du ci ar y a cti on i s j ust that, a sta nd ar d of re vi ew ; i t i s no t a n evi denti ar y pr esum pt ion
. I t a pp l i es at t h e m otion to d ism iss stage as w ellas therea fter. ”); In reCi t igroup ER I SA Li t igat i on , 66 2 F
. 3d 12 8, 139 ( 2d Cir

. 20 11) ( “The ‘p re sum pti on’ i s no t a n evi denti ar y pr esum pti on; i t i s a st andard ofr evie w appli ed to a d ec isio n m ad e b y a n E R ISA fid u c iar y.” ); Edgar v. A va ya, Inc. , 50 3 F
. 3d 34 0, 34 9 ( 3d Cir

. 20 07) ( affi rm i ng di sm i ssa l on the pl eadi ngs a nd fi nd i ng M oe n ch p re su m p tio n is appr o pr i at el y a ppl i ed atp leadi ngs ta g e; the r e i s “n o reas o n t o a l l o w thi s ca se t o pr o ce ed to di sc o ve ry when, e ve n i fthe a ll ega ti o ns a r e pr o ve n t r ue , [ th e p lainti ff ] cannotes tabl i sh thatdefendants ab used th eir d iscretion”). W e al so rej ect the sta nd ar d for ove rco m i ng th e presu m p tion of p rud en ce u rged up on u s by th e Secretary and plai nti ff s

— the s ame s ta nda r d a do p ted b y the S i xth Ci r cui t i n P

fe il — th atpl aint i ff s can ov er co m e th e p resu m p tion by sh ow ing tha t “a p rud en t fi d uc iary acting u n der s i m i l arci rcum sta nces w oul d have m ade a diff er ent invest m ent deci si on. ” Pfe i l v. St at e S t r e e tBank & Tr u s tCo. , 6 71 F
. 3d 585, 59 1 ( 6th Ci r. 20 12)

. W e do not b elie ve th e p re su m p tio n w ou ld su fficie n tly p ro te c t fi-24 N o. 11

- 2660

R ecal l thatevery t im e one i nvestor se ll s a s ecuri ty that has 5 f a l l e n i n pr i c e r e c e nt l y, a no the r i nv e s t orbu ys i t in t he h op e tha t its p rice w ill i nc rea se. W e d o n o t i n t en d to exa g g era te the d ifferen ce b etw een ou r v iew an d th a t o f t he Sixth C ircu it. W e d o n ot n ecessar ily d isag ree w ith th e altern ativ e ho ld ing in P feil thatthe plai nti ff s in that c ase overcam e the M oe nch p res um pt i on by al l eg i ng thatthe p lan fiduci ar i es ac t ual l y vi olat ed the ter m s ofthe plan. The plan in that c ase requi red divestmen to fe m pl oy e r ( Ge ne r a l Mot or s ) s t oc k i fthe r e was “a s eri ous qu es ti on concerni ng [ G eneral M otors ’ ] s hort- ter m viabil i t y a s a g oi ng c on c e r n wi tho utr e s or tt o ba nk r up t cy proce ed ings. ” 671 F. 3d at 592. The plaint iff s all eged that the com p a ny’ s independ ent aud it ors had s tat ed “substant ial (co n tin u ed ...) d uc iari es facing con fl icting d em an d s ifi t cou ld be overco m e so ea si l y . Pl aint i ff s an d th e S ec r et ar y ar gu e here th at u n d er th e Six th C irc u it’s st an d ar d , pla in tiffs co u ld ove rco m e the pre sum pti on bym er el y fi nd i ng a fin an ce e x p e rtw h o c ou ld , w ith th e b en efit of h in d sig h t, cla im th at h e w ou ld h av e m ad e d i f f er en t in ve st m en t d ec isi o ns o r c ho se n di ff er en t i nv es tmento pti o ns tha n the defe nd ant fi du ci ar i es did. I fthe M oe nc h presum pti on w er e that e asyto r eb ut, i t would s er ve l i ttl e purpose . ESOP fi du ci ar i es would beco m e insurer s a gai nst l oss f ro m si gni fi cant s tock m arketl oss es. S how i ng tha t anothe r i nvestorwould have i nvest ed diff er entl y doe s no t she d m ea ni ng full i g hto n the c o nduc t o fthe defe nd an t fi du ci ar i es w hen f aced with i nstr ucti ons to i nves t i n e mpl o y e r s t o c k, a nd t o a l l o w e mpl o y e e s t o do so , du r i ngi ne v i t a b l e b utu np r e di c t a b l e p e r i o ds o f decl i ni ng st ockpri ces. 5N o. 11

- 2660 25

(

. . . c on t i nu e d) 5 do u b t ” aboutthe c om pany ’ s abi l i t y t o c ont i nue as a goi ng concern a t leas t five m onths befor e the fiduciari es began to d iv es t e m p lo y er sto ck

. Id. I ns te ad, pl aint i ff s m us t show tha t no r ea so nabl e fi duci ar i es w oul d hav e th ou ght they were o bl i gat ed to conti nue off er i ng co m pa n y stoc k. S ee M oench , 62 F. 3d at 571. S om eti m es E R IS A pl ai nti ff s

— i nc l udi ngthe pl a i nt i ff s her e

— a dva nc e two the o r i es t o e xpl ain why off er i ng em plo yee s the op tion ofi nvest i ng i n em plo yer st o ckmightb e i m pr ude nt
. Fi rst, the y may cl ai m tha t th e sto ck i s o ver val ued and that i nvest or s a re bo u n d t o l ose m oneywh en the m ar keti nevi tabl y c or re c ts the pr i ce d ow n w ar d

. Se c on d , th ey m ay c laim th at th e s t o c k is ex ce ss i ve l y r i sky b ec au se , e ve n i fthe m ar k eti s pr i ci ng i t co rr ectl y, the sto ck m ay be s ubj ect to p rice s w i ngs tha tc e r t a i n i nv e s t o r s c a nn o tt o l e r a t e . ES OP p a r t i c i pants ofte n ad vance these theo ri es afterthe em plo yer ’ s s toc k e x p e r i e n c e s a s i g n i fi c a n td r o p, c l a i mi n gth a tth e e mplo yer ’ s “ dir e ci rc u m sta nces” pu t the pl an fi du ci ar i es on not i ce b oth that th e s toc k was o ver val ued and that the s toc k was to o ri sky

. W e hav e fu n dam entaldoubts about the v i abi l i ty of ESOP prudence cl ai m s ba sed o n ei ther theor y, atl eas t w here ( a) the em plo yer’s st ocki s publ i cl y t ra ded i n an effi ci ent m ar ket( m eani ng par tici pants co uld have o bser ved the dir e ci rc u m stances them sel ves and acted ac co r di ng l y ) a nd (b) th e em pl o y er ’ s st o cki s o nl y o ne in ve st m en t o p t i on for e m p loy ee s w h o c an sh ift t h eir26 N o. 11

- 2660 i nvest m ents w i th r el ati ve ease (an d thus the sto ck i m poses l i ttl e ri sk up on em plo yee - i nvest or s)

. In case s base d on al l ege d over val uati on, cl ai m s that fi du ci ar i es im p ru d en tly co m p lied w ith p lan d oc u m en ts to p er m it em plo yee s t o buy and hol d em ploye r sto ck tend to be based o n a rgum ents that fi du ci ar i es ei ther : ( 1) f ai l ed to an ticipate how their com p an y or stock value w o u ld f are i n the futur e , ( 2 ) f a i l e d t o u s e n o n- pu b l i c i nfo r mat i on availab le to them to i ncre ase the benefi ts to em plo yee s, o r ( 3) f ai l ed to o ut smar t th e r es t o fthe mar k et
. None of these ar e acceptabl e base s f or hol ding fi du ci ar i es l i abl e f orl oss . The fi rs t is sim plya l ack ofo m ni sci ence and fo re si ght. T h a t is not a basis f or find ing a breach of fi d uc iary du ty. S ee D eBruyne v. Equitabl e Life A ss urance Society, 92 0 F
. 2 d 4 5 7, 4 6 5 ( 7 th C i r . 19 9 0 ) ( r e fu s i n gt o fi n d i mpr ude nce si m pl y b ec au se fund l o stmone y, no ting ER I SA “ ‘ re quir es p rudence, notpre sci ence’ ” ( ci tat i on om itt ed )); Q uan , 62 3 F
. 3d a t 881 ( “Fi du ci ar i es ar e no t ex p ecte d to pred ict the futu re of th e c o m p a ny stock’s p erform an ce . . . . ”). The seco nd would r equi re i nsi d er s t o engag e in i nvest
m e n t t ra n sa c tio n s o n th e b as is of m at er ial n on p u b lic i nfo rm ati on, wh i ch w oul d vi ol ate fed er alse curi ti es law s. Lan

f e ar, 67 9 F
. 3d a t 1282 ( “J ust a s pl an part i ci pants have no r i ght to i nsi st that fi du ci ar i es be c or pora te i nsi ders, theyhave no rig h t to i nsi st that fi du ci ar i es w ho a re co rpor ate i nsi de rs use i nsi de i nfo rm ati on t o th e a d va n ta ge of th e p ar tic ip an ts .”); Q uan , 62 3 F
. 3d at 881 ( the M oench pre sum pti on “gi ves fi du ci ar i es a s afe harborN o. 11

- 2660 27 fro m failin g to u se in sid er in f or m at ion ”); Kirs ch b aum , 526 F

. 3d at2 56 ( “[ I ] n s o m e ca se s, r equi r i nga fi duci ary to o ver ri de the ter m s o fa com pany st ockpurchase pla n coul d sugges t the nece ssi ty oft ra d ing o n i nsi der i nf o r m at i o n. S ucha c o ur se i s pr o hibi te d b y the s ec uriti es law s.”)

. The thi rd would hol d fi du ci ar i es l i abl e fo r f ai l i ng to outsm ar t a pre sum pti vel y e ffi ci ent m ar ket

. That i s a l so not a sound basi s f or i m posi ng l i abi l i ty. Su m m ers , 45 3 F. 3d at 408 ( “A tr ustee i s no t i m p ru d en t t o ass um e that a m aj orst ockm ar ket

. . . pro vi des t h e b es t esti m ate o f the v al ue o fthe sto cks tr aded on it t h at is ava i l abl e t o hi m . ”) ; se e a l so N e l s on v. Hodowal , 51 2 F
. 3d 347, 35 0 ( 7th Ci r. 2008) ( “Se curi ti es l aw as sum es that m ar ket s f or w id ely -tr ad ed st oc k .

. . a re effic ien t a n d im p ou n d all pu bl i cl y a vai l abl e info rm ati on. ”) , ci ti ng B a s i c Inc . v. Le vi ns on , 485 U .S. 22 4 (1 98 8). It w ou ld n otbe rea so n ab le to i m pose any o fthes e obl i gat i ons on fi du ci ar i es. W hen w e a ske d c ou nself orpl ai nti ff s a nd co unsel f or th e S ec r et ar y o fLabo r f o r o th erg r o unds fo ri m po sing l i abi l i ty, we re cei ved no speci fi c answers . T he pl ai nti ff s’ theo ry expects the i m possibl e f ro m fi du ci ar i es, at lea st as lon g a s w e are de ali ng w ith an effici en t m arket for a publ i cl y t r ade d s to ck, i n w hi chwe as su m e th e cur r en t m ar ke t p ric e in c or p or at es all p u b lic in for m at ion t h a t is m ate ri alto the sto ck val ue. S ee gener al l y A m gen Inc. v. Conne ct i cu tRe t i r e m e ntPla ns an d Tr us tFu nds , 13 3 S. Ct. 11 84, 11 92 ( 2013 ) ( describi ng effi ci ent s ec u rit i es m ar k et s)

. W he neve r a pa r ti cul ars to ck, a pa r ti cul ari ndu str y, o r ev en an enti re m ar ketexper i ences a28 N o. 11

- 2660

m aj orchange i n pri ces, i t wil l be possibl e to fin d a f ew peo pl e who pr edi ct ed i t an d i nv es te d ac co r di ngly, a nd m an y ot h er s w h o d id n ot . I f th e m ar ke t is effic ien t, it i s ha r d t o s ee ho w ERI S A co ul d fi nd a fiduci ar y i m pr udent f orval uinga sto ck at i ts curr ent m ar ket p ric e. Se e Su m m ers , 4 5 3 F .3d at40 8, 41 2. Y et p lain tiffs ’ th eo ry is that the M & Ifi du ci ar i es w er e i m prudent f orf ai l i ng to f or ese e the dro p i n M & I ’ s s toc k pr i ce a nd f or f ai l i ng to see thatthe sl i de w oul d conti nue. A l though fi du ci ar i es cannot re l i abl y pr ed i ct when or how m uch sto ck w i l l dro p i n the future, th ey can be re as on ab ly c er ta in th at so m e h igh -im p a c t, im p ro b ab le eve nts

— i n c lu d i ng dram ati c l oss es orga i ns i n the sto ck m ar ket

— are l i kel y. S ee gener al l y Nassi m N i chol as Tal eb, The Blac k S wan (20 07 ). M & I B an k u n d er st oo d th is w hen the Pl an was est abl i shed. The Plan contem pla ted th e w i dest pos sibl e r ange ofci rcum sta nces and dir ecte d p lan fid u c iar ies to offe r th e M & I Sto c k F u n d u n d er all ci rcum sta nces, “no m att erhow dir e. ” Th e Pla n w ent a st ep fur th er i n e xpl aini ngthe r ea so ns f o r thi s i ns tr uct i o n: “M ar sh all & Il sle y C or p or at ion be liev es th at, sh ou ld it s uff e r r e v e r s a l s o ff o r t un e , the a l i g nme nto fthe i nt e re sts of P lan Par ti ci pants and M ar shal l & I l sl ey Corpor ati on m a y be th e v er y t h in g w h ich w ill en ab le M ar sh all & I lsl ey C orp oration to again prosp er. ” Plan § 1 6 .02(f). I nstea d of i gnor i ng the wide r ange ofpote nti alswings the s i ngl e e m ploye r stock fund co uld f ace, the Pl an tr eat ed the e m plo yerst ockfund as wh at i t was

— j us t o ne i nvest m ent o pti on a m ong m an y, one that w oul d gi ve pr i o r i tyt o i nv es tingi n o ne ’s em p l o y ero ve r i nv es tment d iversity ( an d therefore risk m iti gation).N o. 11

- 2660 29 The seco nd theo ry

— thatfid u c i ar i es i m posed exce ssi ve ri sk up on par ti ci pants

— i s e quall y pr oble m ati c. There i s no doubt that i t i s h igh ly ri skyf oran ind i vi du al em plo yee to i nvestheav i l y in th e em plo yer ’ s s toc k. S ee Su m m ers , 453 F.3d at4 09 -10 ; L isa M eu lbr oe k, Com pany Stock i n P ens ion Plan s: How Co st ly Is It ? , 4 8 J
. L. & Eco n. 44 3, 44 8 (2 00 5) (ris k of in ve st m en t i n a s in gle firm is double thati n a d iver si fi ed acco unt); S hl om o Benartz i etal. , TheLa w and Economic s of Com panySt oc k i n 4 01(k) Plan s , 50 J
. L. & Econ. 45 , 49

- 50 ( 2007 ) ( ri sk to em plo yee ofinv e s t men ti n s i ng l e e mpl o y e r s t o c kma y b e g r eat er than M eulbro ek’ s ca l cul ati ons because “i t e xposes them to idiosync ratic ri sk as w ell a s t o the p ossibil ity ofsuff er i ng simul ta ne o us r edu ct i o ns i n b o thr et i r ement savings a nd wages”) ; se e a l so Vick i e L. Baj tel sm i t & J ack L. VanD er hei, Ri sk A ver si on a nd Pension I nvest
m en t Cho i ce s, i n P o sitio nin g P ensio ns f o rth e Tw enty -First Cen t ury 45 , 66 (M ich ae l S. G or d on , etal. e ds. , 1 99 7) ( ES OPs ar e su bs ta nt i al l y r i sk i ertha n di ve r si fied p l an s) , c i ting M i ch ae l Co nt e & Rama J amp an i, F i na nc i alRe tu r ns o fES OPs a nd S i m i l ar P lans, i n Pen s i ons, Sa vi ngs, an d C a pit a l M a rkets ( Dep’ t o fLabo r 1 99 6)

. Re m embe r, tho ug h, that the M & IPl an g ave em plo yee s fre edom to m ake th e i r o wni n v e s t me n tc h o i c e s fr o m a mo n gma ny diff eren t invest m ent o pti ons. Those opti ons w er e cho sen to gi ve em plo yee s the abi l i ty to tai l oran ind i vi du al port f ol i o to fi t a ny i nd i vi du al ’ s t ol er ance fori nvest
m ent r i sk. There is am ple r eas on t o w or rythatm any e m plo yee s w i l l n o tu nd e r s t a nd the r i s k i ne s s o fa n e mpl o y e r s t ock fu n d . See , e . g. , Ric h ar d T h ale r & C as s R . Su n st e i n, N udg e30 N o. 11

- 2660 1 2 8

- 3 0 ( r e v i s e d e d. 2 0 0 9 ) , c i t i ngBost on R e s e a r c h Gr o up , E n r o n Ha s L i t t l eE

f f e c to n 4 0 1(k) Pa r t i c ip a n t s ’Vi e w o f C o mpany Stock(20 02 ) (su rv ey rev ea led m os t e m p loy ee s d id not ap p reciate th e ri sk of un d ivers if ied em p loyer stock); B en ar tz i etal. , 50 J
. L. & Econ. at53

- 54 ( pa s tr e s e ar ch and author s’ r ese ar ch showed the sa m e: “Onlythr ee of 10 re spondents r eal i ze th at co m pany st ocki s r i ski erthan a di ver si fi ed sto ck fund

. ”) ; M eulb ro ek, 48 J
. L. & Econ. at 447- 48 ( sum m ar i zi ng r ese ar ch showing that em p l oye es tend to und er est i m ate the ri ski ness of com pany stock and that thei r perce pti on o fr i sk “se em s m or e r el ate d to th e fi rm ’s pas t return s tha n to its stock volatil ity”). Bu t ERI SA d oes n ot r eq uir e fi du ci ar i es ofan EI A P to act as pe rs onal i nvest m ent a dvis er s t o pla n part i ci pants, norco uld they do so. They do not have enough info rm at i o n a b o u ta n e mp l o y e e ’ s o th e r a s s e t s , f a mi l y c i r c u msta nces, r i sk tol er ance, and so o n, to pro vi de such i n d ivi du aladvi c e. Such a pla n gi ves parti ci pants the co ntro l by desi gn , a nd i t g i ves em plo yee s the r esponsibi l i ty and fr eedom to choo se how to i nvestthei r fund s.

D
. A pplying theM oench Pres um ption of P rudenc e W e r eco gni ze that thi s l ogi c poi nts in the dir ecti on o f n ev er rec og n iz i n g c h alle n ge s t o E SO P fid u c iar ies ’ d ec isi ons to off erand to co nti nue offer i ng publ i cl y t ra ded em p l o ye r st oc k a s o n e o f se ve ra l inv es tm en t o p tio n s in an i nd i vi du al l y di re cted r eti re m ent o r othe r savi n gs pl a n. W e ha v e no t g o ne tha t f a r i n pr i o r c a ses , se e H ow el l , 633 F.3d at56 8-6 9; Su m m ers , 453 F. 3d at 41 1-1 2; St e i nm an , 35 2 F
. 3d at 11 06 , a nd we need not go that f arN o. 11

- 2660 31
to de ci de th i s ca se . Nev er th el es s, pl aint i ff s ch al l en g i ng anES OP i nv es tmento ff er i ngb as ed o n o ve r va l ua ti on

— eve n i ftheyal l ege ci rcum sta n c es m or e e xtre m e than thos e a l l ege d here

— w ill stil l n ee d to reb u t t h is log ic an d s ho w a b as i s f o r l i ab i l i tyth atdo es no t depe nd on h in d sig h t o r a t h eo ry th at p l a n fid u c iar ies sh ou ld h av e ou ts m ar te d an effic ien t m ar ke t or u se d n on -p u b lic m ate ri ali nfo rm ati on f orthe b en efi t o fpl an part i ci pants. A nd pl ai nti ff s chal l engi ng an ESOP i nvest m ent o pti on und erthe excess i ve ris k theor y wil l need t o show extr em e r i sks i m posed upon parti ci pants byfi du ci ar i es th a to u t we i g h th e f l e x ib i l i t y o fa p l a n th a ta l l o ws e mpl o y ee s to s el ec t f r o m a m o nga v ar i ety o fi nv es tment opti ons. W e n e e d n o te xp l o r e i n thi s cas e the o ut e r b o un ds ofwh at m or e e xtre m e c irc um sta nces m i ght r equi re an ESOP fid u c i ar y t o vi ol ate pl an te rm s a nd r em ove publ i cl y t r ade d e m pl o y ers to cka s a n in ve st m en t o pti o n. W e ne ed not do s o b ec au se the pl aint i ff s’ a l l eg at i o ns here do notco m e cl ose to d escribi ng a ci rcum sta nce i n whi chno r ea so nabl e fi duci ar y c o ul d b el i ev e th atc o ntinui ngt o o ff era s o ne i nv estm en t o pti o n a fund inves t i ngp r i mar i l y i n the e mpl o y e r ’ s s t o c kwo ul d v i ol at e ERI S A. Gi ve n the c le ardi r ec ti o n o fthe Pl ando cum en t s t o o ff e r th e fu n d u n d e r a n y c i r c u ms t a n c e s , “ no m at te r ho w d i r e, ” we do no t se e ho w anyo fthe pl ainti ff s’ al l ega ti ons about M & I ’ s decline w oul d have l ed the fi du ci ar i es to re aso nabl y thi nk tha t th e adopters o f th e P l a n wo u l d h a v e wa nt ed th e m t o r e mo v e th e M&I St ockFund as an o pti on under the ci rc u m sta nces al lege d here , nordi d ER I SA requi re the fi du ci ar i es to vi o l at e th e te r m s o fthe Pl an .32 N o. 11

- 2660 Fi rs t, pl ai nti ff s m ake no al l ega ti ons suffi ci ent t o i nd i cate thatM & I ’ s ci rcum sta nces w er e e i therdi re o r near i ng co l l apse. The val ue o fem plo yee s’ i nvest m ents i n M & Idro pp ed i n acco rdance w ith the re st ofthe sto ck m arket an d not so d rastically as to be con side red dire ci r cumst an ce s. S ec o nd, pl aint i ffs m ak e no a l l eg at i o ns s u ffi c i e n tt o i n d i c a t e th a t, g i v e n a l l th e r e l e v a n tc i r c u msta nces, the fi du ci ar i es i m posed exce ssi ve risk upon the par ti ci pants. The Pl an per m i tte d e m p l oye es to choos e fr om am ong tw enty- tw o opti ons and al l owed them to change thei r i nvest m ents at any t i m e. T o exp lain th e fi rst p oint, th e d rop i n stoc k pr ice here was no t ex tr ao r di na r y, e spe ci al ly com par ed to the v al ue ofsi m i l arbank s’ st ockpri ces and bro ader sto ck m ar ket i nd i ces du ri ng the sa m e per i od. Fr om N ovem ber20 06 to Apr i l 2 0 1 0 , M &I ’ s s t o c k f e l l f r o m $ 4 6

. 9 2 t o $2 1. 43 (ad j u st ed to inc lu d e t h e M et av an te an d FIS sp in -offs ), a drop o f54 per cent . A s p ain ful as that w as, such a dro p i n sto ck p ric es w as not unu sualf orbank s duri ng tha t p eri o d. An i nf o r m als ur ve y o fo th erna ti o na l a nd re gi onalbank s’ st oc k p ric es f ro m the sam e per i od sh o ws tha t M &I ’ s st o ckpe r f o r m an ce was c o ns i st en t w i th the per f or m ance ofo therbank s a t the ti m e:N o. 11

- 2660 33

Bank Start i ng Stock Pri ce Nove mber10, 2006 End i ng Stock

Pri ce Apri l 21, 2010 Per cen t

D ro p
M &I $ 46. 92 $ 21. 43 54% Bank ofAm er i ca $ 46. 85 $ 18. 05 61% Fi fth- Thi r d $ 34. 15 $ 14. 40 58% Capi t al One $ 71. 56 $ 44. 18 38% Twi n Ci t i es Fe der al $ 21. 65 $ 15. 61 28% S our ce : Yahoo! Fi nanc e S t oc k Res ear chCent er, fi nanc e. yahoo

. co m
The dr o p i n M& I ’ s st o ckpr i ce was also ge ne r al l y c o nsi st en t wi ththe o vera l l pe r f o r m an ce o fthe mar k eta t th e ti m e, al though M & I ’ s reco ver y was so m ew hat s l ower an d m ore m od est th an the rest of t h e m arket’s. M & I ’s st oc k f e ll th ro u gh 20 07 an d 20 08 , hitits low es t p oin t in th e firs t q u ar te r of 2 00 9, an d th en be ga n to rec ov er . Sim ilar ly, th e St a n d a r d & P oo r’s 50 0 in d ex d ro p p ed n ea rly 50 perce nt i n the sam e per i od a n d , like M & I, hi t i ts low est p oint in M arch 2009 an d then began to recover. Se e Yahoo ! Finance S toc k Res earch Center, H i sto ri cal St ock Pri ces, fi nance. yaho o. com . Thus, M & I ’ s s toc k was n otp er for m in g d ra m at ica lly w or se th an ot h e r ind iv i d u a l s t o c k s o r th e l a r g e r m a r k e ti t s e l f

. I fa ts o me t i me du ri ng the dow nw ar d sli de the fi du ci ar i es had rem o ve d the M &I S to ckF und fr o m the a va i l ab l e o pti o ns i n the Pl an , th e effi ci en t m ar k ethy po th es i s te l l s us th atthe y woul d h ave had di ffi cul tyr epl ac i ngi t wi tha st oc k or fu n d th at w as likely to p er for m m u c h be tt er . T he 54 per cent drop i n M & I ’ s s toc k i s a l so not sign ifican tly w orse tha n d rop s in s t o c k prices in case s w he re34 N o. 11

- 2660

we a n d o th e r c o u r t s h a v e f o u n d , a s a ma t t e r o fl a w, no vio l at i o n o fthe duty o fpr ude nc e. I n Su m m ers , we affi rm ed sum m ar y j ud gm ent forp lan fi du ci ar i es, fi nd i ng tha t they di d not a ct i m prudentlyby not dive sti ng fro m an ESO P d es p ite a t ota l pri ce dr op of 8 4 p e r c e n t
. At e a c h p o i n t i n th e d o wn wa r d s l i de, t he m arket p rice w as th e best est im ate of the stoc k’s va lu e, u sin g t h e e fficie n t m ar ke t h y p ot h es is for p u b licly tr ad ed st oc ks

. Su m m ers , 45 3 F
. 3d at 408. I n H ow el l , we affi r m ed su m m ar y j udg m en t f o r fi duci ar i es o fa n EI AP, fi nd i ng the y di d not a c t i m prudentlywh en the y di d not r emov e th e empl o y er ’s s to ckfr o m the i nv es tment o p t i o n s d e s p i t e a 5 0 p e r c e n td r o p i n the p r i c e o fth e c o mpany’s st ock, wh i ch i ncl ud ed a s l i ght r ec ov er y a fter dro pp i ng2 3 p e r c e nti n o ne da y . T ha tv o l a t i l i t y was wi th i n the “ bo unds de sc r ibe d b y pl andocum en ts , ” an d c olla p se w as n otim m in en t. How el l , 633 F. 3d at 568- 69. I n Cit igroup , the Sec ond Circu it affi rm ed dism is s a l of a prudence cl ai m , fi nd i ng tha t p lan fi du ci ar i es did notact i m pr ude nt l y de spi te a 5 2 per ce ntdr o p i n s to ckpr i ce i n o ne y ea r, no tingtha t a 5 0 pe r ce ntdr o p di d no t co m pelthe fid u c iar ies to ch an ge th eir co u rs e o f ac tio n . Cit igroup , 662 F.3d a t 141. Sim il arly, the 54 perc en t d rop here d oes not am ou nt to th e kind of d ire or ex traord inary ci rcum sta nce that would have per m i tte d the fi du ciar i es to disr ega rd the t er m s o fthe Pl an, l et al one re quir ed them to do s o. Se cond, the fl exibi l i ty of the M & IPl an m eant that conti nuing to off erthe M & IS toc k Fu n d d id not i m pose an undu e r i sk on p ar tic ipants. A t a l l ti m es, part i ci pantsN o. 11

- 2660 35

c ou ld ch oo se am on g t w en ty -tw o fu n d s a n d co u ld tr ansferm oneybetw een fund s a t a ny ti m e. I fem p l oye es w an ted to avoid th e ri sk of hold ing o r buy ing m ore M & I sto ck, i t w as eas y f or them to chan ge investm ents at any t im e. ( The defa ultchoi ce forem plo yee i nvest
men t s wa s a di v e r s i fi e d “ b a l a nc e d g r o wt h” fun d. Supp. A pp . 5. ) S ee Su m m ers , 4 53 F
. 3d at 410 ( no ting t e ns i o n b e t w ee n e mpl o y e e i nt e r e s t s a nd g o a l o fES OP “i s no t a cute i fthe parti ci pants i n the ESOP have a d eq ua te sou rces of i nc om e or w ealth th at are not corr el at ed wi ththe r i sk o f[ empl o y er ] s to ck, s o tha t th e E SO P is not th eir p rim ary fi na nc ialasset” ). T h e a va ilab ility of ot h er op tio n s d oe s n otn ec es sa rily e x c u s e o ff e r i n go n e i mpr u d e n ti n v e s t me n t
. E R I S A i mposes a du ty ofp ru d en c e w i th r ega rd to ev er y o ff er i ng, see H ow el l , 633 F.3d at56 7, an d on e c a n i m ag in e w ild ly sp ec u lat i ve an d u n su ita b le in ve st m en ts . W h en fid u c iar i es a r e co ns i der i ngs pec i fi c al te r na ti ves, tho ug h, i ncl ud in g whether to re m ove the em plo yer ’ s s toc k fro m th e a va ilab le op tio n s, th e a va ila b ility of ot h er op tio n s is a r el evantf acto r, es peci al l y where em plo yee s m ay f ace a w i de ra nge o ffi nanci alci rcum sta n c es . As w e e xplai ned i n Stein m an a nd Su m m ers , the an alysis of a fi d uc iary’s prudence depend s o n al l the re l evantcircum sta nces. See St e i nm an , 3 5 2 F
. 3 d a t 1 1 0 6 ( a na l y z i ng a v a ri ety o f re lev an t fa c t o rs to d et er m in e w h et h er “t ak en as a w h ole th e p lain tiffs ’ ret ire m en t a ss et s a r e a d eq u at ely d ive rs if i ed ”); Su m m ers , 4 5 3 F
. 3 d a t4 1 1 ( no t i ngs o ur c e o fduty f orfi du ci ar i es i s e xcessi ve ri sk, and “[ h]o w exce ssi ve woul d d ep end i n the fi r sti ns ta nc e o n the a m o unt an d cha racter of the em p loyees’ other asset s”).36 N o. 11

- 2660 E ve n if th e a va ilab ility of ot h er op tio n s d oe s n otits elf al w ays excuse a deci si on to conti nue off er i ng em plo yer sto ck, thei r avai l abi l i ty i s r el evantto how m uch ri sk a fi du ci ar y i m poses o n part i ci pan ts
. Par ti ci pants ar e no t host age to a com pany’s decl i ni ng st ocki fthey c an i nvest i n other fund s. S ee Howel l , 6 33 F.3d at 56 9 (“Th e very exi ste nce o fthe thre e o ther in vest m ent o pti ons . . . o r ei ght o thero pti ons . . . i n the abse n c e ofany chal l enge to a ny o ftho se o th erfunds , o ff ers as su r an ce tha t th e Plan w as ad eq ua tely diversifi ed and no p ar t ic ipan t’s retirem en t po rtfol io cou ld be h eld h ost a g e to M otorola’s fortun es”). M iti gating risk furt he r, pa rtic ip an ts he re w er e l i m i ted to inv es ting onl y 3 0 per cent ofthei r tot al c o nt r ib ut i o ns t o the M &I S t o c k F un d, tho ug h they coul d l ate r m ove addit i onalas set s t o M & Ist ockupon re quest. Thi s was n ot a situati on i n w hi ch fi du ci ar i es im p osed excess i ve ri sk up on par ti ci pants bynotr emov i ngthe M& IS t o c kF un d. W e d o n oth old th at it is im p os sib le t o a lleg e a via b le i m prudence cl ai m ag ai nst ESOP fi du ci ar i es or t h at near dem i se o r excess i ve ri sk ar e the o nl y c i rcum sta nces und erwh i ch a fi du ci ar y wil l b e obl i gat ed to aba nd on a p la n ’ s d ire c tio n s, th ou gh for re as on s s et fort h ab ov e, it wi l l b e di ffi c ul tf o r a p l a i nt i fft o me e ttha ts t a nd a r d. For now , suffi ce it to say that th e facts a lle g e d here si m pl y do no t i ndi ca te tha t i t co ul d ha ve b ee n i m pr udent f orthe M & Ifi du ci aries t o f ol l ow the Pl an’ s di re cti ons to kee p M & Ist ockas an invest m ent c hoi ce. W e al so r ec o gn ize, as the di st r i ctc o ur t di d, tha t th e st r o ngl an g ua g e i n thi s Pl an ’ s do cument s r equi r i ngN o. 11

- 2660 37 that fi du ci ar i es off erM & I s toc k, “no m att erhow dir e” the c i rcum sta nces, m ay see m t o i nsul ate M & Ifro m cl ai m s o fi m p rude nc e i n a ny c i r cumst an ce s. Be ca us e th e ci rcum sta nces here

— a 54 percen t d ro p i n sto ck pri ce

— wo ul d n o tp e r mi tp l ai nti ff s t o o v e r c o me the p r e s umption of p rud en ce regard less ofthe stren gth of th e Plan ’s dir ecti on t o off erM & I stoc k, we do not re st our deci si on o n tha tl a ngua g e i n l i g hto fthe f a c ttha tER I S A’ s duty o f pr ude nc e r equi r es fi duci ar i es to f o l l o w pl andocume n t s o n l y i n s o f a r a s th e y a r e “ c o ns i s t e n t ” wi th E R I S A. See 29 U

. S. C

. § 1104(a)(1) (D). W e can l eave that m ore diffi cul t quest ion f orano therday when fi du ci ar i es f aced m or e e xtre m e ci rcum sta nces. O n a fi na l not e, w e reco g n iz e th at ou r dec isi on inte rprets ERIS A i n a way that g i ves pla n part i ci p an ts a g r ea t dea l o fr es po ns ibi l i tyf o rthe i r o wn i nv est m en t deci si ons w hen the pla n al l ows them to m ake those d ec isio n s. T h e la w in g en er al, in c lu d in g E R ISA in t h is i ns ta nc e, t en ds to a ss um e th atES OPs o per at e i n a w or ld with r ati onalact or s who benefi t fro m fre e cho i ce an d goo d info rm at ion . See , e . g. , 29 U
. S. C

. § 1104(c) ( safe harbo r f orfi du ci ar i es w here pl an part i ci pants co ntro l i nv e s t men to fa s s e t s ) ; P e ns i o n Pr o t e c t i o n Acto f2 0 0 6, Pub

. L. No. 1 09

- 28 0, § 9 01 ( r equi r i ngde fi ne d c o nt r ibut i o n p l a n s th a ti n v e s ti n e m p l o y e r s t o c kt o g i v e e mp loyees greater freedom to divest em p loyer stock). T he em p iri cal da ta tell a d if ferent story. In rece nt surveys, over half of 401(k) pa rtici p an ts believed i nc orre ctl y that th eir em plo yerst ockfund s were l ess r i sky than a dive rs i fi ed stock o r m oneym ar ketfund

. S ee38 N o. 11

- 2660 R ich ar d T h ale r & C as s R . Su n st ein , N udge 1 2 8 ( r e v i s e d e d. 2 0 0 9), c itin g B os to n R es ea rc h G ro u p , Enron Has L i tt le E ff ec t on 401 (k) P arti cipants ’ Vie w of Com p a ny Stock( 2002 ); Sh lom o B en ar tz i etal. , The Law an d Eco nomic s of Com pany St oc kin 4 01 (k) Pla ns , 50 J
. L. & Econ. 45 , 53

- 54 ( 2007 ) ( re view i ng pastr ese ar ch and conducti ng new res ear ch on th e p oin t); se e a lso L isa M eu lbr oe k, C om pany Stock i n P ens ion P lans: H ow Co st ly Is It ? , 48 J
. L. & Econ. 443, 44 7- 48 (20 05) ( sum m ar i zi ng r ese ar ch showing that em plo yee s ten d to be naive an d pa ssive inves t ors and do n ot un d ersta nd r i s ka nd n e e d fo r di v e r s i t y i n 4 0 1 ( k ) p l a n i nvest
m en ts). Because o fsuch m i sund er sta nd i ngs, em plo yee - dir ecte d re ti re m ent s avi ngs pl ans ca n pose substa nti alr isk s. E m p loy ee s m a y u n w itt in gly ta ke on m or e ris k t h an is su ita b le for th eir p u r p o s e s . T h at is n otth e s or t o f cla im these pl ai nti ff s hav e br ought, tho ugh, and thi s k i nd o f l i ti gat i on does notse em to be an eff ecti ve sol uti on t o the pr obl em o fpoor l y info rm ed pla n part i ci pants. Perhaps that probl em would be bett erso l ve d thro ugh ru les su c h as lim i t s o n em p loy ee inv es tm en ts in empl o y ers to ck, o r b y e nc o ur ag i ngo r e ve n r eq uiri ng p lan s t o offe r m or e e d u c at ion ab ou t in ve st in g. Se e, e . g. , B en ar tz i, etal. , 5 0 J
. L. & Eco n. a t 6 5- 69 ( su g g es ting p os si b l e p olic y c or re c tio n s); Jeff S c h w ar tz , Rethi nki ng 401(k)s , 4 9 H ar v. J
. o n Le g i s. 5 3 ( 20 12 ) ( pr o po sing dr amat i c r es tr uctur i ngo f4 01 ( k ) pl an s)

. Buti n the abse nce o fo therwrongful conduct not al l ege d here , perm i tti ng em plo yee s t o hol d fi du ci aries l i abl e f or off er i ng em plo yerst ockas o ne o pti on in a n i nd i vi du al l ydi r ec te d r etire m en t sa ving s pl an s woul d r i skc o nv er tingN o. 11

- 2660 39 th e fi duci ar i es i nt o g ua r an to r s o fe m pl o y ee r et i r ement sa vin gs. That i s f arbey ond w hat ca n be expected o f fid u c iar ies of d efin ed co n tr ibu tio n p lan s.

III
. Concl us i on T h e p lain tiffs ’ alle ga tio n s d o n otst at e a via b le c laim f orbr each ofERIS A ’ s fi du ci ar y duty ofprudence du ri ng the pro posed c lass per i od. The M & Ifi du ci ar i es did notvi ola te ER I SA by co m ply i ng with the t er m s o f the Pl an by co nti nuing to off erthe M & IS toc k F und as ani nv es tm en t opt i o n dur i ngM &I ’ s 54 pe r ce ntde cl i ne in stock p rice, a dec li ne that w as n o t extra ord inary but was i nstea d consi ste nt with the r esto fthe sto ck m ar ket

. Offer i ng the fund di d not e xpose the par ticipan ts t o e xc es si ve r i sk, g i ve n the fl ex ibi l i tytha t th e Pl an ga ve p ar ti ci pants to di re ct thei r own i nvest m ents amonga v ar i ety o fi nv es tmento pti o ns . The j udg m en t ofthe dist ri ct c ourti s A FFI RMED .

4- 19- 13