As a follow up to our blog on the ERISA sponsor / fiduciary boundary dispute, here is another case, Coulter v. Morgan Stanley & Co. Inc., from the Second Circuit. The employer decided to make contributions in the form of company stock, rather than cash. Then the employer’s stock price plunged in conjunction with the economic downturn. Plaintiffs alleged the employer breached its fiduciary duty by making the investment in stock. The district court dismissed the claims on the basis of the Moench presumption of prudence.
The Appellate Court affirmed the dismissal of the claims, but on a simpler basis. The Court found that the employer acts as a fiduciary when administering a plan, but not when designing the plan or making business decisions about the plan, even if those decisions may impact negatively on participants. The employer’s stock and cash were not plan assets prior to the time they were contributed to the trust. Further, the employer does not have a conflict of interest when it is making a business decision because it does not have a fiduciary duty to the ESOP participants with respect to a business decision. These are hardly groundbreaking holdings, but they demonstrate the importance of recognizing and respecting boundaries with respect to ERISA plans, especially ESOPs.