In the

United States Court of Appeals

For the Seventh Circuit

No. 11-2660

LINDA WHITE, on behalf of herself and

a class of persons similarly situated, and

CHARLENE L. ROUNDTREE,

Plaintiffs-Appellants,

v.

MARSHALL & ILSLEY CORPORATION, et al.,

Defendants-Appellees.

Appeal from the United States District Court 

for the Eastern District of Wisconsin.

No. 2:10-cv-00311-JPS—J.P. Stadtmueller, Judge.

ARGUED SEPTEMBER 13, 2012—DECIDED APRIL 19, 2013

Before MANION, SYKES, and HAMILTON, Circuit Judges.

HAMILTON, Circuit Judge. When financier J. Pierpont

Morgan was asked what the stock market would do,

he answered, according to Wall Street legend, “It will

fluctuate.” Sometimes it fluctuates a lot, as the sponsor

of the retirement savings plan in this case understood
2 No. 11-2660

well. This case is about how federal law applies to such

fluctuations in the value of an employee stock ownership plan.

This case is one in a series alleging that fiduciaries of

employee retirement savings plans acted imprudently by

allowing employees to choose to buy and hold an employer’s stock while it declined significantly in price. See,

e.g., Dudenhoefer v. Fifth Third Bancorp, 692 F.3d 410 (6th

Cir. 2012), petition for cert. filed, No. 12-751 (Dec. 14, 2012);

Lanfear v. Home Depot, Inc., 679 F.3d 1267 (11th Cir. 2012);

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

2012); Gearren v. The McGraw-Hill Cos., 660 F.3d 605 (2d

Cir. 2011); In re Citigroup ERISA Litigation, 662 F.3d 128

(2d Cir. 2011); Howell v. Motorola, Inc., 633 F.3d 552 (7th

Cir. 2011).

Such cases are governed by the federal Employee Retirement Income Security Act of 1974, better known

as ERISA. 29 U.S.C. § 1001 et seq. As in most of these

cases, the plaintiffs here alleged that the plan fiduciaries

violated ERISA by continuing to offer employer stock

as an investment option while the stock price dropped,

in this case during the financial crisis of 2008-2009. In

the absence of allegations of misrepresentations or other

wrongful conduct not alleged here, plaintiffs in such

cases under ERISA must try to hit a very small and perhaps non-existent target. The theory — that the employer

and plan fiduciaries violated their duty of prudence

under ERISA by continuing to offer employer stock as an

investment option — would require the employer and

plan fiduciaries, in this case and many similar cases, to
No. 11-2660 3

violate the retirement plan’s governing documents,

which employers and plan fiduciaries are also required

to follow under ERISA. The theory also seems to be

based often on the untenable premise that employers and

plan fiduciaries have a fiduciary duty either to outsmart the stock market, which is groundless, or to use

insider information for the benefit of employees,

which would violate federal securities laws.

Defendant Marshall & Ilsley Corporation (M&I Bank)

offered its employees an individual account retirement

savings plan, which we call “the Plan.” The Plan allowed

employees to choose how to distribute their savings

among more than twenty investment funds with

different risk and reward profiles. The investment

funds offered by the Plan were selected by the Plan’s

fiduciaries. ERISA imposes on a plan’s fiduciaries a

duty of prudence, meaning that they must select only

prudent investment options to include in the plan.

29 U.S.C. § 1104.

One of the investment options in the Plan was the M&I

Stock Fund which consisted of M&I stock. This type

of fund is called an Employee Stock Ownership Plan or

ESOP. See 29 U.S.C. § 1107(d)(6). During the housing

market collapse and subsequent market crash in 2008

and 2009, M&I’s stock price dropped by approximately

54 percent, as did the value of employees’ investments

in the M&I Stock Fund.

The employees filed this putative class action under

ERISA, 29 U.S.C. § 1132(a), alleging that the Plan’s fiduciaries violated their duty of prudence under section 1104
4 No. 11-2660

by continuing to offer the M&I Stock Fund as one of

the options in the Plan despite the stock’s poor performance. In claims of imprudence against fiduciaries of

ESOPs, many federal courts have applied a presumption that the fiduciaries acted prudently. The district

court applied this presumption of prudence, found that

plaintiffs’ allegations could not overcome it, and

granted the defendants’ motion to dismiss the case

under Federal Rule of Civil Procedure 12(b)(6) for

failure to state a claim for relief. White v. Marshall & Ilsley

Corp., Nos. 10-311, 10-377, 2011 WL 2471736 (E.D. Wis.

June 21, 2011). The district court did not reach the

issue of class certification.

Plaintiffs have appealed. The Secretary of Labor has

filed an amicus brief regarding the proper legal

standard in such cases, focusing in particular on the

presumption of prudence that we and other courts

have used in such cases. Even when we accept as true

plaintiffs’ allegations, as we must when we review

a dismissal under Rule 12(b)(6), we agree with the

district court that the Plan fiduciaries here benefit from

a presumption of prudence and that the plaintiffs’ allegations do not overcome that presumption. We therefore affirm the judgment of the district court.

I. Factual Allegations

A. The M&I Retirement Plan

M&I Bank sponsored a retirement savings fund for its

employees called the M&I Retirement Program. The Plan
No. 11-2660 5

The Plan is a “defined contribution” plan under ERISA 1

because the employees bear the risks of loss and benefit

from gains on their invested contributions. 29 U.S.C. § 1002(34).

was subject to ERISA’s rules governing employee retirement savings plans, under which the Plan was considered

an Employee Individual Account Plan or EIAP because

employees selected the funds for investing their savings

from among options chosen by the Plan fiduciaries.

29 U.S.C. § 1107(d)(3). Under the Plan, employees

1

could choose how to allocate their investments among

the twenty-two funds in one-percent increments. Employees could shift their new contributions and existing

investments to different investment options at any time.

This arrangement was laid out in the Plan’s governing document. The Plan was implemented and managed in accordance with the governing document by the

Plan’s fiduciaries. The named fiduciary of the plan was

M&I Bank itself, and the Plan was overseen by an Investment Committee that consisted of several M&I directors, all of whom are defendants here.

The Plan’s governing document permitted the Investment Committee to select the funds that would be

available in the plan, but it specifically required that one

particular investment be one of the Plan’s investment

funds — the M&I Stock Fund. Plan § 16.02(b). The M&I

Stock Fund consisted entirely of M&I’s common stock,

apart from a small amount of cash or money market

funds to meet immediate cash needs. This type of investment fund — one investing primarily in the employer’s
6 No. 11-2660

stock — is considered an Employee Stock Ownership

Plan or ESOP under ERISA. 29 U.S.C. § 1107(d)(6). The

Plan’s governing document required that the M&I Stock

Fund be offered in the Plan and that it invest in M&I

stock at all times, regardless of any “reversals of fortune.”

Regarding the prospect of “reversals of fortune,” the

Plan used strong language. It recognized the likelihood

of significant declines in stock price from time to time,

but took a long-term view and directed the Plan

fiduciaries to allow for alignment of the interests of employees and the corporation:

Marshall & Ilsley Corporation, as the settlor of the

Plan and the Trust, hereby declares that its intent and

purpose in creating the M&I Fund is to align the

interests of Plan Participants with Marshall & Ilsley

Corporation. Marshall & Ilsley Corporation believes

that its success as an entity and the performance of

the M&I Fund will both be enhanced and facilitated

in the long run by such alignment. At the same

time, Marshall & Ilsley Corporation recognizes that

the performance of a business fluctuates and the

valuation of stock fluctuates. As a result, it is possible

that M&I’s business and the value of the M&I Fund could

decline significantly (even to the point where Marshall &

Ilsley Corporation’s ongoing viability comes into question). Nevertheless, Marshall & Ilsley Corporation,

as the settlor of the Plan and Trust, intends and declares that neither the Committee nor any other Plan

fiduciary shall have any authority or ability to cause

the M&I Fund to be invested in anything but M&I
No. 11-2660 7

stock, except for liquidity needs as discussed in paragraph (b) above. Marshall & Ilsley Corporation

believes that, should it suffer reversals of fortune,

the alignment of the interests of Plan Participants and

Marshall & Ilsley Corporation may be the very thing

which will enable Marshall & Ilsley Corporation to again

prosper. In sum, Marshall & Ilsley Corporation, as

settlor of the Plan and Trust, hereby declares that it

is its intent and command that there can be no

change in circumstances or event (no matter how dire)

which would allow the Committee or any other

Plan fiduciary to shift investment of the M&I Fund

into investments other than M&I stock (except for

liquidity needs as discussed in paragraph (b) above).

Plan § 16.02(f) (emphases added); see also § 16.02(b).

Thus, the Plan’s governing document required the fiduciaries to maintain the M&I Stock Fund under all circumstances, “no matter how dire.”

B. Allegations of Imprudence

Plaintiffs allege that M&I and the Plan fiduciaries

breached their duty of prudence under ERISA by continuing to offer the M&I Stock Fund as an investment

option in the Plan during a period of significant decline in the market value of M&I stock. Like many other

financial institutions in 2008 and 2009, M&I Bank

suffered significant losses in the wake of the collapse

of the housing market and the financial crisis of the

autumn of 2008 and following. Plaintiffs claim that

amidst this turmoil, the Plan fiduciaries should have
8 No. 11-2660

violated the terms of the Plan, sold the M&I stock held

by the Plan, and removed the M&I Stock Fund as one of

the options in the Plan because M&I stock was overvalued and too risky an investment for retirement savings.

According to plaintiffs, M&I’s problems began when

M&I expanded too quickly into risky loans outside its

familiar geographic area and its usual loan types. Many

of these loans failed, which led to significant net losses

and credit-quality deterioration and forced the bank to

tap deeply into capital reserves. Observers and analysts

recognized that M&I was in poor financial condition

at the end of 2008. They repeatedly downgraded M&I

bonds and stock because of the poor quality of the loans

in M&I’s portfolio. Plaintiffs allege that these problems

caused the price of M&I stock to drop dramatically

and “created dire financial circumstances” that would

inevitably result in significant losses to plan participants,

Complaint ¶ 143, or at least increase the riskiness of

the investment to intolerable levels. Complaint ¶ 75.

The Complaint identifies several assessments of

M&I’s financial condition that plaintiffs allege indicated

the riskiness of M&I’s stock: in 2008 M&I’s stock was

downgraded by four major investment banks; in

November 2008 M&I received federal funds as part of

the Troubled Asset Relief Program (TARP); in December 2008 Audit Integrity identified M&I as a “very risky

company;” by April 2009 six percent of M&I’s loans

were nonperforming, and on August 14, 2009 Bloomberg

News noted that M&I was one of several banks with

at least five percent “toxic” loans and quoted a finance
No. 11-2660 9

Unlike plaintiffs suing for securities fraud, plaintiffs can sue 2

under ERISA even if they simply held their investments. There

is no purchase or sale requirement for fiduciary duty claims

under ERISA. Compare 15 U.S.C. § 78j and Blue Chip Stamps

v. Manor Drug Stores, 421 U.S. 723 (1975), with 29 U.S.C.

§§ 1104(a)(1), 1109.

expert as saying that at five percent toxicity, “chances

are regulators have them classified as being in unsafe

and unsound condition;” on September 14, 2009 the

Pittsburgh Tribune Review opined that “the biggest

loser in the S&P 500 this year is Marshall & Ilsley

Corp.;” and by April 2010 M&I reported its sixth consecutive quarter of loss.

Plaintiffs sought compensation for loss of value in

their retirement savings during the class period from

November 10, 2006 to April 21, 2010. In the district 2

court, plaintiffs alleged and argued that the fiduciaries

failed to provide beneficiaries with accurate information about the company’s financial condition, and that

M&I failed to monitor other fiduciaries adequately

and failed to provide them with accurate information.

Plaintiffs have not pursued those theories on appeal.

Plaintiffs focus all their attention on appeal on their

claim for breach of the duty of prudence.

From the beginning of the class period to the end of

the period, M&I stock dropped 54 percent, from $46.92

per share to an adjusted value of $21.43 per share.

Appellee Supp. App. 11-30. This price is adjusted to

include both the value of M&I stock and the value of
10 No. 11-2660

When Metavante split off from M&I on November 2, 2007, 3

shareholders received .333 shares of Metavante stock for each

share of M&I stock. When Metavante was acquired by FIS on

October 1, 2009, Metavante shareholders received 1.35 shares

of FIS stock for each share of Metavante stock. These calculations assume that M&I shareholders maintained ownership of

the transferred stock through both spinoffs, as employees

were permitted to retain their Metavante stock when it spun

off from M&I. The adjusted M&I price includes the nominal

price of M&I itself plus the added value of the Metavante

and then FIS stock. See Supp. App. 30.

the stock of two spinoff entities — Metavante and FIS —

whose stock M&I shareholders were permitted to

retain when those stocks spun off from M&I. The Plan

was also amended to allow the M&I Stock Fund to hold

those two stocks. Thus, while M&I’s nominal stock price

at the end of the proposed class period was $9.94,

the parties agree that the total value of a shareholder’s

investments from one share of M&I stock should be

adjusted to include the converted spin-off shares, which

was $21.43 at the end of the class period.3

During the class period, M&I stock bottomed out at an

unadjusted nominal price of $3.11 per share on March 5,

2009. Id. In a deal announced December 17, 2010, Bank

of Montreal (BMO) agreed to acquire M&I Bank for

$7.75 per share, an approximate 33 percent premium over

M&I’s nominal closing stock price on December 16,

2010 of $5.79.
No. 11-2660 11

II. Analysis

We review de novo a district court’s grant of a motion

to dismiss under Federal Rule of Civil Procedure 12(b)(6),

and we take all factual allegations as true and draw

all reasonable inferences in favor of the plaintiffs. Pugh

v. Tribune Co., 521 F.3d 686 (7th Cir. 2008). Courts can

take judicial notice of public stock price quotations

without converting a motion to dismiss into one for

summary judgment. E.g., id. at 691 n.2. We can also consider ERISA plan documents that were attached to the

complaint or referenced in it without converting the

motion to one for summary judgment. See Venture Associates Corp. v. Zenith Data Sys. Corp., 987 F.2d 429, 431 (7th

Cir. 1993).

A. Fiduciary Duties Under ERISA

ERISA’s primary goal is to protect employee interests

in pensions, retirement savings, and other benefit plans.

29 U.S.C. § 1001(b); Shaw v. Delta Air Lines, Inc., 463 U.S.

85, 90 (1983); (“ERISA is a comprehensive statute designed to promote the interests of employees and their

beneficiaries in employee benefit plans.”). To accomplish this goal, ERISA imposes duties on the

fiduciaries who manage plans. These duties include

duties to invest prudently, to comply with plan documents, and to diversify investments. 29 U.S.C.

§ 1104(a)(1)(B), (C), (D). This last duty, to diversify, runs

counter to the purpose of ESOPs, which by definition

concentrate investment in a single employer stock. See
12 No. 11-2660

Steinman v. Hicks, 352 F.3d 1101, 1104 (7th Cir. 2003). But

Congress favors ESOPs as a policy matter because

they provide a way for employers to align employee

and management interests. See Tax Reform Act of 1976,

Pub. L. No. 94-455, § 803(h), 90 Stat. 1520, 1590 (1976)

(noting Congress’s interest in “encouraging employee

stock ownership plans as a bold and innovative method

of strengthening the free private enterprise system”). To

preserve and encourage ESOPs, Congress exempted

fiduciaries of ESOPs from the duty to diversify and

limited the duty of prudence so as not to require diversification for such plans. 29 U.S.C. § 1104(a)(2).

The other ERISA duties — to manage retirement plans

prudently and to follow plan documents — still apply

to ESOP fiduciaries and are relevant here. Section 1104

is entitled “Prudent man standard of care.” It requires

fiduciaries to discharge their duties for the purposes

of providing benefits to participants and their beneficiaries, 29 U.S.C. § 1104(a)(1)(A)(i), and to act “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,” § 1104 (a)(1)(B). This duty requires

fiduciaries to select only prudent investments for an

employee individual account plan, Howell v. Motorola,

Inc., 633 F.3d 552, 567 (7th Cir. 2011), though without

providing specific guidance as to what it means for an

investment option to be prudent. Complicating matters

further, section 1104 also requires fiduciaries to act “in

accordance with the documents and instruments gov-
No. 11-2660 13

This statutory duty originates in trust law, which requires a 4

trustee to act in accord with the terms of the trust. Restatement (Third) of Trusts § 91 (2007); see also Lanfear v. Home Depot,

Inc., 679 F.3d 1267, 1280-81 (11th Cir. 2012) (citing Restatement

§ 91 in analyzing challenge to ESOP fiduciaries). Trust law

serves as the basis for much of ERISA, see Firestone Tire &

Rubber Co. v. Bruch, 489 U.S. 101, 110 (1989), though “trust law

does not tell the entire story,” because, “[a]fter all, ERISA’s

standards and procedural protections partly reflect a congressional determination that the common law of trusts did not

offer completely satisfactory protection.” Varity Corp. v.

Howe, 516 U.S. 489, 497 (1996).

erning the plan insofar as such documents and instruments are consistent with the provisions of this subchapter and subchapter III of this chapter.” 29 U.S.C.

§ 1104(a)(1)(D).4

B. Fiduciary Duties for Employee Stock Ownership Plans

ESOP fiduciaries must comply with the statutory duties

both to act prudently and to comply with the plan’s

governing documents unless the documents are inconsistent with ERISA. In the context of ESOPs, plan documents and the duty of prudence may point fiduciaries

in different directions. As here, ESOPs’ governing documents typically direct fiduciaries to invest primarily in

employer stock, creating a duty under section 1104(a)(1)(D)

to follow the plan documents and to maintain that investment or investment option. But if the company’s

viability is in jeopardy, the employer’s stock may not be
14 No. 11-2660

a prudent investment. In such cases, employees might

argue that the statutory duty of prudence requires a

fiduciary to remove the employer stock fund as an

option for employee investments or to redirect that fund

to other stocks. When an employer is in poor financial

condition and its stock price is falling, the mandates to

follow plan documents and to act prudently might

thus pull fiduciaries in two opposite directions: both to

keep the employer stock option and to remove it. This,

at least, is the theory on which so many ESOP cases

have been built.

Plaintiffs allege that there was such a conflict here. The

M&I Plan fiduciaries kept the M&I Stock Fund as an

option throughout M&I stock’s descent until the ultimate acquisition by the Bank of Montreal. The plaintiffs

claim that in doing so, the fiduciaries violated the

duty of prudence. But if the fiduciaries had done the

opposite — removed the fund when M&I’s stock

price was low — the plaintiffs could have claimed that

the same fiduciaries were liable for the gains employees

missed when M&I’s stock price subsequently increased.

In that case, the claim would be that the fiduciaries violated the Plan’s governing documents by removing the

M&I Stock Fund as an investment option. For example,

after M&I stock reached its lowest point in the proposed

class period, it increased in value by more than 150

percent by the end of the class period — from an adjusted

low price of $8.46 to an adjusted price of $21.43 — a gain

that was generally in line with the broader market recovery. If the fiduciaries had chosen to violate the

terms of the Plan and had forced a sale of employees’ M&I
No. 11-2660 15

stock at the lowest point, the employees would have

lost out on the later increase in value and would seem to

have had viable claims under ERISA for the fiduciaries’

failure to comply with the terms of the Plan document.

To the extent that courts allow liability for either following plan documents or departing from them, fiduciaries could be liable either for the company stock’s poor

performance if they continue to invest in employer

stock, or for missing the opportunity to benefit from

good performance if they do not. This logic puts ESOP

plan fiduciaries in a precarious position that threatens to

make them guarantors of good investment performance.

We have referred to this precarious position as sitting

on a “razor’s edge.” Armstrong v. LaSalle Bank National

Ass’n, 446 F.3d 728, 733 (7th Cir. 2006). Such a high exposure to litigation risks in either direction could discourage employers from offering ESOPs, which are

favored by Congress, or even from offering employee

retirement savings plans altogether. See generally Varity

Corp. v. Howe, 516 U.S. 489, 497 (1996) (courts interpreting ERISA must consider several goals of Congress,

including not unduly discouraging employers from

offering welfare benefit plans in the first place);

Hockett v. Sun Co., 109 F.3d 1515, 1522, (10th Cir. 1997)

(same for retirement plans).

C. The Moench Presumption

Courts have taken this precarious position into

account when deciding how to apply ERISA’s duty of

prudence to ESOPs when the employer’s stock price
16 No. 11-2660

drops significantly enough to provoke litigation. Beginning with Moench v. Robertson in the Third Circuit

and continuing in many cases that followed, federal

courts have tempered the risk of liability for fiduciaries

in these circumstances by applying a presumption that

the fiduciaries acted prudently. In Moench, the Third

Circuit considered whether fiduciaries of an ESOP

violated their duty of prudence by continuing to invest

employee funds in company stock throughout the company’s descent toward eventual bankruptcy. 62 F.3d 553

(3d Cir. 1995).

Moench involved a type of retirement savings plan

different from the one here. In Moench, the ESOP did not

give employees a choice among different investments.

It was instead a stand-alone fund, and its primary purpose was to provide employees the opportunity to

invest in employer stock. The fund required the

fiduciaries to invest the fund in employer stock, and

plaintiffs alleged it was imprudent to continue to invest

that fund in employer stock. In the case of M&I Bank, by

contrast, the employer stock fund was just one of many

options available for employees to choose among in

their retirement savings plan, and plaintiffs alleged

that fiduciaries breached their duty of prudence by

merely offering the ESOP as one of the funds. Courts

facing prudence claims where ESOPs allow such employee choice similarly apply the Moench’s presumption.

See Lanfear v. Home Depot, Inc., 679 F.3d 1267 (11th

Cir. 2012); In re Citigroup ERISA Litigation, 662 F.3d 128

(2d Cir. 2011). In view of the choices available to employees, the reasons supporting the Moench presumption seem to apply with even more force in such cases.
No. 11-2660 17

The court in Moench acknowledged the tension

inherent between ERISA’s duty of prudence and the

ESOP’s direction to invest in employer stock. The Moench

court held that plan language directing the fund to be

invested primarily in employer stock did not necessarily

doom a plaintiff’s claim that the fiduciary breached the

duty of prudence by continuing to invest in it. Instead,

the court attempted to balance the potentially conflicting directions by giving fiduciaries managing ESOPs

a degree of deference that is high but not complete.

The court held that 

an ESOP fiduciary who invests the assets in

employer stock is entitled to a presumption that it

acted consistently with ERISA by virtue of that decision. However, the plaintiff may overcome that presumption by establishing that the fiduciary abused

its discretion by investing in employer securities. 

62 F.3d at 571.

Adding more specific content to this reasoning, the

Moench court explained that a fiduciary would be found

to have abused its discretion by continuing to permit

investment in the employer’s stock only if “the ERISA

fiduciary could not have reasonably believed that continued adherence to the ESOP’s direction was in

keeping with the settlor’s expectations of how a prudent

trustee would operate.” Id. Thus, under Moench, courts

presume that where plan language directs fiduciaries

to offer employer stock, an ESOP fiduciary’s decision to

continue offering employer stock is prudent unless the

plaintiffs show that, despite the instructions in the plan,
18 No. 11-2660

the circumstances were so compelling that no reasonable fiduciaries would have thought they should

continue to offer the stock as directed in the plan. The

plaintiff must show that, “ ‘owing to circumstances

not known to the settlor and not anticipated by him

[the making of such investment] would defeat or substantially impair the accomplishment of the purposes of

the trust.’ ” Id., quoting Restatement (Second) Trusts

§ 227 comment g.

This general approach, known as the “Moench presumption,” has been widely adopted by other circuits in cases

alleging imprudence by either investing in an ESOP or

allowing employees to choose to do so. See Lanfear v. Home

Depot, Inc., 679 F.3d 1267, 1280-81 (11th Cir. 2012) (collecting cases); In re Citigroup ERISA Litigation, 662 F.3d

128, 138 (2d Cir. 2011) (adopting Moench presumption

because “it provides the best accommodation between

the competing ERISA values of protecting retirement

assets and encouraging investment in employer stock”);

Quan v. Computer Sciences Corp., 623 F.3d 870, 881 (9th

Cir. 2010) (“if properly formulated, the Moench presumption can strike the appropriate balance between the employee ownership purpose of ESOPs and other EIAPs,

and ERISA’s goal of ensuring proper management of

such plans”); Kirschbaum v. Reliant Energy, Inc., 526 F.3d

243, 254 (5th Cir. 2008) (“The Moench presumption

logically applies to any allegations of fiduciary duty

breach for failure to divest an EIAP or ESOP of company

stock.”).

Courts applying the Moench presumption have held

that plaintiffs seeking to overcome the presumption
No. 11-2660 19

must allege and ultimately prove that the company faced

“impending collapse” or “dire circumstances” that could

not have been foreseen by the founder of the plan. See,

e.g., Citigroup, 662 F.3d at 140; Quan, 623 F.3d at 882

(“plaintiffs must therefore make allegations that ‘clearly

implicate[ ] the company’s viability as an ongoing concern’ . . .”); Kirschbaum, 526 F.3d at 255-56 (affirming

summary judgment for defendant where no evidence

showed that company’s “viability as a going concern

was ever threatened, nor that [its] stock was in danger

of becoming essentially worthless”). A significant decline in stock price is not enough, unless perhaps it is

combined with other evidence of impending collapse,

mismanagement, or internal conflicts of interest. See

Quan, 623 F.3d at 884 (“ ‘[m]ere stock fluctuations, even

those that trend downward significantly, are insufficient

to establish the requisite imprudence to rebut the

Moench presumption’ ”), quoting Wright v. Oregon Metallurgical Corp., 360 F.3d 1090, 1099 (9th Cir. 2004); see

also Moench, 62 F.3d at 572 (vacating grant of summary

judgment for defendants where stock drop was accompanied by insider knowledge of impending collapse

and insider conflicts of interest, and remanding for

further proceedings in light of presumption of prudence).

Our circuit has used the Moench presumption in

deciding imprudence claims against ESOP and EIAP

fiduciaries. In Howell v. Motorola, Inc., 633 F.3d 552 (7th

Cir. 2011), we considered whether fiduciaries of an

EIAP acted prudently in continuing to offer employer

stock as one of eight investment options in the plan.

In affirming summary judgment for the defendant fidu-
20 No. 11-2660

ciaries, we acknowledged the Moench presumption

for traditional ESOPs and noted that the defendants’

decision to keep company stock as one option “must

be evaluated against that backdrop.” Id. at 568. In

Armstrong v. LaSalle Bank, 446 F.3d 728 (7th Cir. 2006),

we reviewed an ESOP trustee’s decision deferentially,

noting that although we typically do not defer to fiduciaries under ERISA, “a decision that involves a balancing

of competing interests under conditions of uncertainty

requires an exercise of discretion, and the standard of

judicial review of discretionary judgments is abuse of

discretion.” Id. at 733. In that case, though, we reversed

summary judgment in favor of the trustee of an ESOP

whose stock was not publicly traded and whose employees did not have choices about investing in the

ESOP. There were genuine issues of fact concerning

whether the fiduciary actually exercised its discretion

in taking the actions at issue.

We have suggested that plaintiffs in ESOP cases

under ERISA can overcome the Moench presumption of

prudence by showing that fiduciaries’ actions created

excessive and unreasonable risk for employees, given all

the relevant circumstances, in addition to the showing

of “dire circumstances” or “impending collapse” recognized by other circuits. In two cases addressing

prudence challenges to the management of single

ESOP funds (not EIAPs offering employer stock as one

option, as here), we emphasized the relevance of the

amount of risk the fiduciaries imposed upon the participants. In Steinman v. Hicks, 352 F.3d 1101 (7th Cir. 2003),

we affirmed summary judgment for fiduciaries. We
No. 11-2660 21

hypothesized, though, that prudence might require

fiduciaries to diversify employer stock funds in circumstances presenting unusually severe financial risks to

participants: for example, if all plan participants were

close to retirement, participants held most of their retirement savings in the ESOP, all funds were invested in

the employer stock, and the employer’s stock was converted into another company’s stock with greater

volatility and bankruptcy risk. Id. at 1106.

In Summers v. State Street Bank & Trust Co., 453 F.3d 404

(7th Cir. 2006), we again affirmed summary judgment

for fiduciaries of an ESOP after the company (United

Airlines) went into bankruptcy. We reasoned that the

duty to abandon a preference for employer stock is

based on how much risk the employer’s situation

imposes on the employees. Whether risk is excessive

would depend on “the amount and character of the employees’ other assets.” Id. at 411. In Howell, we extended

this risk analysis to a challenge to the offering of an

ESOP in an EIAP, noting that where several other investment options were available to participants, “no

participant’s retirement portfolio could be held hostage

to [the company’s] fortunes.” 633 F.3d at 569.

In this case, we again follow the reasoning of Moench

and its progeny. With inevitable fluctuations in the

stock market, ERISA’s simultaneous demands to comply

with plan documents and to exercise prudence in

choosing investment options for plan participants can

place fiduciaries on a razor’s edge. If ESOPs are to

fulfill their purposes, fiduciaries who invest in em-
22 No. 11-2660

ployer stock, or who allow employees to choose to invest

in it, in compliance with the terms of the plan need substantial protection from liability for doing so. Without

this shield, the duty of prudence would leave fiduciaries

exposed to liability based on 20-20 hindsight for mere

swings in the market or other foreseeable circumstances

in which reasonable fiduciaries and other investors

could easily disagree about the better course of action.

This potential conflict for ESOP fiduciaries leads us to

afford them significant deference when their prudence

is challenged for complying with plan requirements.

In the absence of some other sort of wrongdoing, no

longer alleged here, the standard for making a showing

of imprudence by fiduciaries of an ESOP or EIAP

should be high. The fiduciaries’ role at the intersection

of the duties to act prudently and to follow plan documents exposes them to liability for either following or

not following plan directions in cases like this.

Plaintiffs and the Secretary of Labor urge us not to

apply a presumption of prudence here or, in the alternative, to make it easier for plaintiffs to overcome the presumption either by relaxing the standard required to

overcome it or by treating the presumption as an evidentiary burden rather than a pleading requirement.

We decline to adopt these positions.

As we have explained, the Moench presumption is

appropriate in this context, where the dual requirements

of ERISA — to comply with plan language and to act

with prudence — threaten to place ESOP fiduciaries on

a razor’s edge. As to its application at the pleading stage,
No. 11-2660 23

the presumption of prudence is not an evidentiary standard but a substantive legal standard of liability and

conduct. Thus, we agree with the Second, Third, and

Eleventh Circuits that a claim against ESOP fiduciaries

alleging a violation of the duty of prudence may be dismissed at the pleading stage if the plaintiffs do not

make allegations sufficient to overcome the presumption

of prudence. See Lanfear v. Home Depot, Inc., 679 F.3d

1267, 1281 (11th Cir. 2012) (“The Moench standard of

review of fiduciary action is just that, a standard of

review; it is not an evidentiary presumption. It applies

at the motion to dismiss stage as well as thereafter.”);

In re Citigroup ERISA Litigation, 662 F.3d 128, 139 (2d

Cir. 2011) (“The ‘presumption’ is not an evidentiary presumption; it is a standard of review applied to a

decision made by an ERISA fiduciary.”); Edgar v. Avaya,

Inc., 503 F.3d 340, 349 (3d Cir. 2007) (affirming dismissal

on the pleadings and finding Moench presumption is

appropriately applied at pleading stage; there is “no

reason to allow this case to proceed to discovery

when, even if the allegations are proven true, [the

plaintiff] cannot establish that defendants abused

their discretion”).

We also reject the standard for overcoming the presumption of prudence urged upon us by the Secretary

and plaintiffs — the same standard adopted by the

Sixth Circuit in Pfeil — that plaintiffs can overcome the

presumption by showing that “a prudent fiduciary

acting under similar circumstances would have made a

different investment decision.” Pfeil v. State Street Bank &

Trust Co., 671 F.3d 585, 591 (6th Cir. 2012). We do not

believe the presumption would sufficiently protect fi-
24 No. 11-2660

Recall that every time one investor sells a security that has 5

fallen in price recently, another investor buys it in the hope

that its price will increase. We do not intend to exaggerate

the difference between our view and that of the Sixth Circuit.

We do not necessarily disagree with the alternative holding in

Pfeil that the plaintiffs in that case overcame the Moench presumption by alleging that the plan fiduciaries actually violated the terms of the plan. The plan in that case required

divestment of employer (General Motors) stock if there was

“a serious question concerning [General Motors’] short-term

viability as a going concern without resort to bankruptcy

proceedings.” 671 F.3d at 592. The plaintiffs alleged that

the company’s independent auditors had stated “substantial

(continued...)

duciaries facing conflicting demands if it could be overcome so easily. Plaintiffs and the Secretary argue here

that under the Sixth Circuit’s standard, plaintiffs could

overcome the presumption by merely finding a finance

expert who could, with the benefit of hindsight, claim

that he would have made different investment decisions or chosen different investment options than the

defendant fiduciaries did. If the Moench presumption

were that easy to rebut, it would serve little purpose.

ESOP fiduciaries would become insurers against loss

from significant stock market losses. Showing that

another investor would have invested differently does

not shed meaningful light on the conduct of the

defendant fiduciaries when faced with instructions to

invest in employer stock, and to allow employees to

do so, during inevitable but unpredictable periods of

declining stock prices.5
No. 11-2660 25

(...continued) 5

doubt” about the company’s ability to continue as a going

concern at least five months before the fiduciaries began

to divest employer stock. Id.

Instead, plaintiffs must show that no reasonable fiduciaries would have thought they were obligated to

continue offering company stock. See Moench, 62 F.3d

at 571. Sometimes ERISA plaintiffs — including the

plaintiffs here — advance two theories to explain why

offering employees the option of investing in employer

stock might be imprudent. First, they may claim that the

stock is overvalued and that investors are bound to lose

money when the market inevitably corrects the price

downward. Second, they may claim that the stock is

excessively risky because, even if the market is pricing

it correctly, the stock may be subject to price swings

that certain investors cannot tolerate. ESOP participants

often advance these theories after the employer’s stock

experiences a significant drop, claiming that the employer’s “dire circumstances” put the plan fiduciaries

on notice both that the stock was overvalued and that

the stock was too risky.

We have fundamental doubts about the viability of

ESOP prudence claims based on either theory, at least

where (a) the employer’s stock is publicly traded in an

efficient market (meaning participants could have observed the dire circumstances themselves and acted

accordingly) and (b) the employer’s stock is only one

investment option for employees who can shift their
26 No. 11-2660

investments with relative ease (and thus the stock

imposes little risk upon employee-investors). In cases

based on alleged overvaluation, claims that fiduciaries

imprudently complied with plan documents to permit

employees to buy and hold employer stock tend to be

based on arguments that fiduciaries either: (1) failed to

anticipate how their company or stock value would fare

in the future, (2) failed to use non-public information

available to them to increase the benefits to employees,

or (3) failed to outsmart the rest of the market. None

of these are acceptable bases for holding fiduciaries

liable for loss.

The first is simply a lack of omniscience and foresight.

That is not a basis for finding a breach of fiduciary

duty. See DeBruyne v. Equitable Life Assurance Society, 920

F.2d 457, 465 (7th Cir. 1990) (refusing to find imprudence simply because fund lost money, noting

ERISA “ ‘requires prudence, not prescience’ ” (citation

omitted)); Quan, 623 F.3d at 881 (“Fiduciaries are not

expected to predict the future of the company stock’s

performance . . . .”).

The second would require insiders to engage in investment transactions on the basis of material nonpublic

information, which would violate federal securities

laws. Lanfear, 679 F.3d at 1282 (“Just as plan participants

have no right to insist that fiduciaries be corporate

insiders, they have no right to insist that fiduciaries

who are corporate insiders use inside information to

the advantage of the participants.”); Quan, 623 F.3d at 881

(the Moench presumption “gives fiduciaries a safe harbor
No. 11-2660 27

from failing to use insider information”); Kirschbaum,

526 F.3d at 256 (“[I]n some cases, requiring a fiduciary

to override the terms of a company stock purchase

plan could suggest the necessity of trading on insider

information. Such a course is prohibited by the securities laws.”).

The third would hold fiduciaries liable for failing to

outsmart a presumptively efficient market. That is also

not a sound basis for imposing liability. Summers, 453

F.3d at 408 (“A trustee is not imprudent to assume that

a major stock market . . . provides the best estimate of

the value of the stocks traded on it that is available to

him.”); see also Nelson v. Hodowal, 512 F.3d 347, 350

(7th Cir. 2008) (“Securities law assumes that markets for

widely-traded stock . . . are efficient and impound all

publicly available information.”), citing Basic Inc. v.

Levinson, 485 U.S. 224 (1988). It would not be reasonable

to impose any of these obligations on fiduciaries.

When we asked counsel for plaintiffs and counsel for

the Secretary of Labor for other grounds for imposing

liability, we received no specific answers. The plaintiffs’

theory expects the impossible from fiduciaries, at least as

long as we are dealing with an efficient market for a

publicly traded stock, in which we assume the current

market price incorporates all public information that is

material to the stock value. See generally Amgen Inc.

v. Connecticut Retirement Plans and Trust Funds, 133

S. Ct. 1184, 1192 (2013) (describing efficient securities

markets). Whenever a particular stock, a particular industry, or even an entire market experiences a
28 No. 11-2660

major change in prices, it will be possible to find a few

people who predicted it and invested accordingly, and

many others who did not. If the market is efficient, it

is hard to see how ERISA could find a fiduciary imprudent for valuing a stock at its current market price. See

Summers, 453 F.3d at 408, 412. Yet plaintiffs’ theory is

that the M&I fiduciaries were imprudent for failing to

foresee the drop in M&I’s stock price and for failing to

see that the slide would continue.

Although fiduciaries cannot reliably predict when or

how much stock will drop in the future, they can be

reasonably certain that some high-impact, improbable

events — including dramatic losses or gains in the stock

market — are likely. See generally Nassim Nicholas Taleb,

The Black Swan (2007). M&I Bank understood this

when the Plan was established. The Plan contemplated

the widest possible range of circumstances and directed

plan fiduciaries to offer the M&I Stock Fund under all

circumstances, “no matter how dire.” The Plan went a step

further in explaining the reasons for this instruction:

“Marshall & Ilsley Corporation believes that, should it

suffer reversals of fortune, the alignment of the interests

of Plan Participants and Marshall & Ilsley Corporation

may be the very thing which will enable Marshall &

Ilsley Corporation to again prosper.” Plan § 16.02(f).

Instead of ignoring the wide range of potential swings

the single employer stock fund could face, the Plan

treated the employer stock fund as what it was — just one

investment option among many, one that would give

priority to investing in one’s employer over investment

diversity (and therefore risk mitigation).
No. 11-2660 29

The second theory — that fiduciaries imposed excessive risk upon participants — is equally problematic.

There is no doubt that it is highly risky for an individual

employee to invest heavily in the employer’s stock. See

Summers, 453 F.3d at 409-10; Lisa Meulbroek, Company

Stock in Pension Plans: How Costly Is It?, 48 J.L. & Econ.

443, 448 (2005) (risk of investment in a single firm is

double that in a diversified account); Shlomo Benartzi

et al., The Law and Economics of Company Stock in 401(k)

Plans, 50 J.L. & Econ. 45, 49-50 (2007) (risk to employee

of investment in single employer stock may be greater

than Meulbroek’s calculations because “it exposes them

to idiosyncratic risk as well as to the possibility of suffering simultaneous reductions in both retirement

savings and wages”); see also Vickie L. Bajtelsmit &

Jack L. VanDerhei, Risk Aversion and Pension Investment Choices, in Positioning Pensions for the Twenty-First

Century 45, 66 (Michael S. Gordon, et al. eds., 1997) (ESOPs

are substantially riskier than diversified plans), citing

Michael Conte & Rama Jampani, Financial Returns

of ESOPs and Similar Plans, in Pensions, Savings, and

Capital Markets (Dep’t of Labor 1996). Remember, though,

that the M&I Plan gave employees freedom to make

their own investment choices from among many

different investment options. Those options were chosen

to give employees the ability to tailor an individual

portfolio to fit any individual’s tolerance for investment risk.

There is ample reason to worry that many employees

will not understand the riskiness of an employer stock

fund. See, e.g., Richard Thaler & Cass R. Sunstein, Nudge
30 No. 11-2660

128-30 (revised ed. 2009), citing Boston Research Group,

Enron Has Little Effect on 401(k) Participants’ View of Company Stock (2002) (survey revealed most employees did

not appreciate the risk of undiversified employer stock);

Benartzi et al., 50 J.L. & Econ. at 53-54 (past research

and authors’ research showed the same: “Only three of

10 respondents realize that company stock is riskier than

a diversified stock fund.”); Meulbroek, 48 J.L. & Econ. at

447-48 (summarizing research showing that employees

tend to underestimate the riskiness of company stock

and that their perception of risk “seems more related to

the firm’s past returns than to its stock volatility”).

But ERISA does not require fiduciaries of an EIAP to

act as personal investment advisers to plan participants,

nor could they do so. They do not have enough information about an employee’s other assets, family circumstances, risk tolerance, and so on, to provide such individual advice. Such a plan gives participants the control

by design, and it gives employees the responsibility

and freedom to choose how to invest their funds.

D. Applying the Moench Presumption of Prudence

We recognize that this logic points in the direction of

never recognizing challenges to ESOP fiduciaries’ decisions to offer and to continue offering publicly traded

employer stock as one of several investment options in

an individually directed retirement or other savings

plan. We have not gone that far in prior cases, see

Howell, 633 F.3d at 568-69; Summers, 453 F.3d at 411-12;

Steinman, 352 F.3d at 1106, and we need not go that far
No. 11-2660 31

to decide this case. Nevertheless, plaintiffs challenging

an ESOP investment offering based on overvaluation —

even if they allege circumstances more extreme than

those alleged here — will still need to rebut this logic

and show a basis for liability that does not depend

on hindsight or a theory that plan fiduciaries should

have outsmarted an efficient market or used non-public

material information for the benefit of plan participants.

And plaintiffs challenging an ESOP investment option

under the excessive risk theory will need to show

extreme risks imposed upon participants by fiduciaries

that outweigh the flexibility of a plan that allows employees to select from among a variety of investment

options.

We need not explore in this case the outer bounds

of what more extreme circumstances might require an

ESOP fiduciary to violate plan terms and remove publicly traded employer stock as an investment option.

We need not do so because the plaintiffs’ allegations

here do not come close to describing a circumstance

in which no reasonable fiduciary could believe that continuing to offer as one investment option a fund investing primarily in the employer’s stock would violate ERISA. Given the clear direction of the Plan documents to offer the fund under any circumstances, “no

matter how dire,” we do not see how any of the plaintiffs’ allegations about M&I’s decline would have led

the fiduciaries to reasonably think that the adopters of

the Plan would have wanted them to remove the M&I

Stock Fund as an option under the circumstances

alleged here, nor did ERISA require the fiduciaries to

violate the terms of the Plan.
32 No. 11-2660

First, plaintiffs make no allegations sufficient to

indicate that M&I’s circumstances were either dire or

nearing collapse. The value of employees’ investments

in M&I dropped in accordance with the rest of the stock

market and not so drastically as to be considered dire

circumstances. Second, plaintiffs make no allegations

sufficient to indicate that, given all the relevant circumstances, the fiduciaries imposed excessive risk upon

the participants. The Plan permitted employees to

choose from among twenty-two options and allowed

them to change their investments at any time.

To explain the first point, the drop in stock price here

was not extraordinary, especially compared to the value

of similar banks’ stock prices and broader stock market

indices during the same period. From November 2006

to April 2010, M&I’s stock fell from $46.92 to $21.43

(adjusted to include the Metavante and FIS spin-offs), a

drop of 54 percent. As painful as that was, such a drop

in stock prices was not unusual for banks during that

period. An informal survey of other national and

regional banks’ stock prices from the same period

shows that M&I’s stock performance was consistent

with the performance of other banks at the time:
No. 11-2660 33

 

Bank

Starting Stock

Price

November 10, 2006

Ending Stock

Price

April 21, 2010

Percent

Drop

M&I $ 46.92 $ 21.43 54%

Bank of America $ 46.85 $ 18.05 61%

Fifth-Third $ 34.15 $ 14.40 58%

Capital One $ 71.56 $ 44.18 38%

Twin Cities Federal $ 21.65 $ 15.61 28%

 Source: Yahoo! Finance Stock Research Center, finance.yahoo.com

The drop in M&I’s stock price was also generally consistent with the overall performance of the market at the

time, although M&I’s recovery was somewhat slower

and more modest than the rest of the market’s. M&I’s

stock fell through 2007 and 2008, hit its lowest point in

the first quarter of 2009, and then began to recover. Similarly, the Standard & Poor’s 500 index dropped nearly

50 percent in the same period and, like M&I, hit its

lowest point in March 2009 and then began to recover.

See Yahoo! Finance Stock Research Center, Historical

Stock Prices, finance.yahoo.com. Thus, M&I’s stock was

not performing dramatically worse than other individual stocks or the larger market itself. If at some time

during the downward slide the fiduciaries had removed the M&I Stock Fund from the available options

in the Plan, the efficient market hypothesis tells us

that they would have had difficulty replacing it with a

stock or fund that was likely to perform much better. 

The 54 percent drop in M&I’s stock is also not significantly worse than drops in stock prices in cases where
34 No. 11-2660

we and other courts have found, as a matter of law,

no violation of the duty of prudence. In Summers, we

affirmed summary judgment for plan fiduciaries,

finding that they did not act imprudently by not

divesting from an ESOP despite a total price drop of

84 percent. At each point in the downward slide, the

market price was the best estimate of the stock’s

value, using the efficient market hypothesis for publicly

traded stocks. Summers, 453 F.3d at 408. In Howell, we

affirmed summary judgment for fiduciaries of an EIAP,

finding they did not act imprudently when they did not

remove the employer’s stock from the investment

options despite a 50 percent drop in the price of the company’s stock, which included a slight recovery after

dropping 23 percent in one day. That volatility was

within the “bounds described by plan documents,” and

collapse was not imminent. Howell, 633 F.3d at 568-69.

In Citigroup, the Second Circuit affirmed dismissal of a

prudence claim, finding that plan fiduciaries did not act

imprudently despite a 52 percent drop in stock price in one

year, noting that a 50 percent drop did not compel the

fiduciaries to change their course of action. Citigroup,

662 F.3d at 141. Similarly, the 54 percent drop here

does not amount to the kind of dire or extraordinary

circumstance that would have permitted the fiduciaries

to disregard the terms of the Plan, let alone required

them to do so.

Second, the flexibility of the M&I Plan meant that

continuing to offer the M&I Stock Fund did not impose

an undue risk on participants. At all times, participants
No. 11-2660 35

could choose among twenty-two funds and could

transfer money between funds at any time. If employees

wanted to avoid the risk of holding or buying more

M&I stock, it was easy for them to change investments

at any time. (The default choice for employee investments was a diversified “balanced growth” fund.

Supp. App. 5.) See Summers, 453 F.3d at 410 (noting

tension between employee interests and goal of ESOP

“is not acute if the participants in the ESOP have

adequate sources of income or wealth that are not correlated with the risk of [employer] stock, so that the

ESOP is not their primary financial asset”).

The availability of other options does not necessarily

excuse offering one imprudent investment. ERISA imposes a duty of prudence with regard to every offering,

see Howell, 633 F.3d at 567, and one can imagine wildly

speculative and unsuitable investments. When fiduciaries are considering specific alternatives, though, including whether to remove the employer’s stock from

the available options, the availability of other options is

a relevant factor, especially where employees may face a

wide range of financial circumstances. As we explained

in Steinman and Summers, the analysis of a fiduciary’s

prudence depends on all the relevant circumstances.

See Steinman, 352 F.3d at 1106 (analyzing a variety of

relevant factors to determine whether “taken as a whole

the plaintiffs’ retirement assets are adequately diversified”); Summers, 453 F.3d at 411 (noting source of duty

for fiduciaries is excessive risk, and “[h]ow excessive

would depend in the first instance on the amount

and character of the employees’ other assets”).
36 No. 11-2660

Even if the availability of other options does not itself

always excuse a decision to continue offering employer

stock, their availability is relevant to how much risk a

fiduciary imposes on participants. Participants are not

hostage to a company’s declining stock if they can invest

in other funds. See Howell, 633 F.3d at 569 (“The very

existence of the three other investment options . . . or

eight other options . . . in the absence of any challenge

to any of those other funds, offers assurance that the

Plan was adequately diversified and no participant’s

retirement portfolio could be held hostage to Motorola’s

fortunes”). Mitigating risk further, participants here

were limited to investing only 30 percent of their total

contributions to the M&I Stock Fund, though they

could later move additional assets to M&I stock upon

request. This was not a situation in which fiduciaries

imposed excessive risk upon participants by not removing the M&I Stock Fund.

We do not hold that it is impossible to allege a viable

imprudence claim against ESOP fiduciaries or that near

demise or excessive risk are the only circumstances

under which a fiduciary will be obligated to abandon

a plan’s directions, though for reasons set forth above, it

will be difficult for a plaintiff to meet that standard.

For now, suffice it to say that the facts alleged here

simply do not indicate that it could have been imprudent for the M&I fiduciaries to follow the Plan’s directions to keep M&I stock as an investment choice.

We also recognize, as the district court did, that the

strong language in this Plan’s documents requiring
No. 11-2660 37

that fiduciaries offer M&I stock, “no matter how dire”

the circumstances, may seem to insulate M&I from

claims of imprudence in any circumstances. Because the

circumstances here — a 54 percent drop in stock price —

would not permit plaintiffs to overcome the presumption of prudence regardless of the strength of the Plan’s

direction to offer M&I stock, we do not rest our decision

on that language in light of the fact that ERISA’s duty

of prudence requires fiduciaries to follow plan documents only insofar as they are “consistent” with ERISA.

See 29 U.S.C. § 1104(a)(1)(D). We can leave that more

difficult question for another day when fiduciaries

faced more extreme circumstances.

On a final note, we recognize that our decision interprets ERISA in a way that gives plan participants a

great deal of responsibility for their own investment

decisions when the plan allows them to make those

decisions. The law in general, including ERISA in this

instance, tends to assume that ESOPs operate in a

world with rational actors who benefit from free choice

and good information. See, e.g., 29 U.S.C. § 1104(c) (safe

harbor for fiduciaries where plan participants control

investment of assets); Pension Protection Act of 2006,

Pub. L. No. 109-280, § 901 (requiring defined contribution plans that invest in employer stock to give employees greater freedom to divest employer stock).

The empirical data tell a different story. In recent surveys, over half of 401(k) participants believed incorrectly that their employer stock funds were less risky

than a diversified stock or money market fund. See
38 No. 11-2660

Richard Thaler & Cass R. Sunstein, Nudge 128 (revised ed.

2009), citing Boston Research Group, Enron Has Little

Effect on 401(k) Participants’ View of Company Stock (2002);

Shlomo Benartzi et al., The Law and Economics of Company

Stock in 401(k) Plans, 50 J.L. & Econ. 45, 53-54 (2007) (reviewing past research and conducting new research on

the point); see also Lisa Meulbroek, Company Stock in

Pension Plans: How Costly Is It?, 48 J.L. & Econ. 443, 447-48

(2005) (summarizing research showing that employees

tend to be naive and passive investors and do not understand risk and need for diversity in 401(k) plan investments).

Because of such misunderstandings, employee-directed

retirement savings plans can pose substantial risks.

Employees may unwittingly take on more risk than is

suitable for their purposes. That is not the sort of claim

these plaintiffs have brought, though, and this kind of

litigation does not seem to be an effective solution to

the problem of poorly informed plan participants.

Perhaps that problem would be better solved through

rules such as limits on employee investments in

employer stock, or by encouraging or even requiring

plans to offer more education about investing. See, e.g.,

Benartzi, et al., 50 J.L. & Econ. at 65-69 (suggesting

possible policy corrections); Jeff Schwartz, Rethinking

401(k)s, 49 Harv. J. on Legis. 53 (2012) (proposing

dramatic restructuring of 401(k) plans). But in the

absence of other wrongful conduct not alleged here,

permitting employees to hold fiduciaries liable for

offering employer stock as one option in an individuallydirected retirement savings plans would risk converting
No. 11-2660 39

the fiduciaries into guarantors of employee retirement

savings. That is far beyond what can be expected of

fiduciaries of defined contribution plans. 

III. Conclusion

The plaintiffs’ allegations do not state a viable claim

for breach of ERISA’s fiduciary duty of prudence

during the proposed class period. The M&I fiduciaries

did not violate ERISA by complying with the terms of

the Plan by continuing to offer the M&I Stock Fund as

an investment option during M&I’s 54 percent decline

in stock price, a decline that was not extraordinary

but was instead consistent with the rest of the stock

market. Offering the fund did not expose the participants to excessive risk, given the flexibility that the

Plan gave participants to direct their own investments

among a variety of investment options. The judgment

of the district court is AFFIRMED.

4-19-13