Compliance March 29, 2011

Claim Against Consultant Allowed to Proceed

The trustees of a Nevada supply company’s 401(k) plan can proceed with their suit accusing a plan consultant of a fiduciary breach by convincing the plan to invest in questionable funds.
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U.S. District Judge Edward C. Reed of the U.S. District Court for the District of Nevada said the plan trustees “narrowly survived” the plan consultant’s motion to dismiss because there were very few indications that the consultant was indeed serving as a fiduciary under the Employee Retirement Income Security Act (ERISA).

However, Reed did throw out the trustees’ claim that the consultant, Barry Downs, violated ERISA by failing to provide the trustees with plan documents. The court said that only plan administrators are liable under ERISA for failing to disclose plan documents. Western Nevada Supply Co.’s profit-sharing and 401(k) plans brought a lawsuit in 2009 against investment managers for their advice to put money in particular investment options.

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The court found there were sufficient allegations that Downs was a plan fiduciary through his capacity as a paid consultant to the plans. The case is Western Nevada Supply Co. Profit-Sharing Plan and Trust v. Aneesard Mgmt., D. Nev., No. 3:09-cv-00737-ECR-VPC.

Compliance March 29, 2011

Stock-Drop Case against UBS Tossed

A federal judge in New York threw out a stock-drop lawsuit against UBS AG and UBS Financial Services Inc.
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U.S. District Judge Richard J. Sullivan of the U.S. District Court for the Southern District of New York dismissed the action against the UBS companies after ruling plaintiffs would have to prove that plan fiduciaries abused their discretion in keeping company stock as a retirement plan investment  option– a bar he said plaintiffs were unable to cross. Sullivan said his ruling came despite the 69% drop in UBS share price.

As do many jurists handling stock-drop cases, Sullivan applied the presumption of prudence typically awarded to fiduciaries who offer company stock in their defined contribution plans. UBS’ difficulties did not rise to the level of “catastrophic failure” that would be necessary to overcome the presumption, Sullivan asserted.

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“Given that, throughout the class period, UBS never reached the brink of imminent collapse, there remained a possibility that the value of UBS stock would rebound. In light of this possibility, and given that each plan presupposed that the fiduciaries would make the UBS Stock Fund available to plan participants, Defendants cannot be said to have abused their discretion,” the court said.

The UBS employees alleged that UBS stock was imprudent investment because of the share price decline from March 13, 2007, to October 16, 2008. The employees linked this substantial decline in UBS stock price to the impact of the housing market meltdown among other factors.

The case is In re UBS AG ERISA Litigation, S.D.N.Y., No. 1:08-cv-06696-RJS.

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