Duties of Directed Trustees in ERISA Stock Drop Litigation

Duties of Directed Trustees in ERISA Stock Drop Litigation is an interesting Oct. 9, 2007 New York Law Journal Article about recent litigation concerning the liability of directed trustees. The article focuses on recent "stock drop" litigation where a company stock drops and directed trustees continue to make investments according to the terms of the plan. The difficult legal issues is when do directed trustees have a duty to disregard the plan's instructions. As the article states:

    A major issue that has emerged in stock drop litigation is the circumstances under which ERISA fiduciary liability may be imposed upon directed trustees for failing to stop allegedly imprudent investments by pension plans in employer stock. Directed trustees have argued that they were retained to execute instructions from others, not to act as discretionary trustees or investment managers. While ERISA §403(a)(1) relieves directed trustees from fiduciary responsibility to the extent that they acted on the basis of a named fiduciary's "proper" instructions, plaintiffs have attempted to argue that directed trustees should be subject to liability if they "knew or should have known" that the named fiduciary's instructions were imprudent.

In this article, we discuss some important legal developments that have occurred over the last several years as to the existence and scope of fiduciary liability for directed trustees. In sum, the duty of directed trustees to question the prudence of instructions from a named fiduciary appears to have been limited over the years to certain extraordinary circumstances and courts are now more willing to dismiss claims against directed trustees at an earlier stage in the litigation.

This article may be of interest to scholars and attorneys with stock drop cases and who are seeking to impose liability on directed trustees.

Mitchell H. Rubinstein