Dude-nhoeffer Looks Like a Lady . . . With the Moench-ies

The oral argument in the Fifth Third v. Dudenhoeffer case was pretty interesting.  It's like they forgot to talk about the case before them.  Maybe they were looking at the Sixth Fourth First Ninth Tenth case?

I guess the Supreme Court sometimes gets sidetracked with these "numbingly technical cases involving applications of pension or benefits law".  See my earlier post on Justice Souter's retirement.  In Kennedy, they realized they granted cert. on the wrong issue and had to re-up the grant to cover the issue that was ultimately dispositive in the case.  Regarding Amara, they decided an issue that wasn't decided below or briefed to the Court at all, leaving one to wonder whether they ever got over not granting cert. in  the Amschwand case.  And now, in Dudenhoeffer, they seem to have the DOL's Enron brief on their mind as they focus on an issue - the intersection of ERISA and the securities laws - that is quite far from the heart of the Dudenhoeffer case.  Wheeee . . .

Returning to what's really at issue in Dudenhoeffer, if I may, I'm somewhat surprised that commentators and the Court aren't generally focusing more on the apparent requirement in the plan there that it be invested in employer stock, viewed through the prism of the "plan documents" rule (as the Kennedy case refers to it) of 404(a)(1)(D).  Rather, the approach has been to frame the question in terms of whether there is a presumption in favor of investment in stock - a la Moensch.*

Framing the question in terms of whether there's a presumption leads to potential hostility at the Supreme Court level towards an asserted presumption that isn't expressly in the statutory language.  The oral argument, to the extent it briefly addresses the presumption issue, seems to reveal such hostility.  To me, at least for plans that mandate stock investment (as the plan in Dudenhoeffer arguably did), the question may well better be framed as whether the statute itself validates an investment in employer stock, not whether there is an implied rule of presumption that emanates from the statutory penumbra.
 
My thinking is as follows:
 
1.  ERISA, in Section 404(a)(1)(D), says that you have to follow plan documents insofar as they are consistent with ERISA (providing specifically that a fiduciary shall discharge the fiduciary's duties "in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with" a wide range of ERISA provisions).  This is a command - it's mandatory.  If the plan tells you to do something, you must do it, unless to do so is illegal.  The DOL has recognized this directive in the context of the employer-securities question going all the way back at least to its seminal brief in the Texas Air case.

2. A.  The DOL has with some success interpreted the "insofar" language in 404(a)(1)(D) as sweeping in, among other things, ERISA's prudence requirements.  While that's not necessarily a completely obvious connecting of the dots, the approach has been broadly accepted, and at this point seems almost axiomatic.

B.  The range of prudence is generally broad, so it would seem to me that there wouldn't be a prudence violation for following governing plan documents unless the action (or inaction) in question could be shown as falling altogether outside the range of prudent (i.e, permissible) behavior.  I would argue that merely showing some some murkiness surrounding the appropriateness of a given decision isn't enough to establish the imprudence (i.e., illegality) of the decision.  I would think that you'd have to show that the decision is outside of the bounds of the range of prudence.

3. A.  Now take a plan provision that says that a plan, or a particular investment fund under a plan, must be invested 100% in employer stock.  What one is left with, then, if the provision requires specified fiduciary conduct by dictating a particular investment (more on that later), is a requirement that the plan be and stay invested in the stock unless . . . it is affirmatively outside the range of prudence. That's an important point, I think: it's not that you CAN invest or stay invested; it's that you must.

B.  The point is arguably strengthened in the context of statutory provisions that provide relief for investment in employer stock.  The point, for me, is not that the provisions in the aggregate form some kind of ethereal presumption, but rather that an analysis allowing a fiduciary to follow a plan provision requiring investment in employer stock unless the decision can be shown to be imprudent flows from the statutory langague of 404(a)(1)(D) and (!) is consistent with the overall statutory scheme.  It may be a subtle difference in some ways, but the crucial distinction, I think, is that the analysis I'm suggesting does not involve the identification of an extra-statutory presumption.

4.  So, then, my argument goes, once the fiduciary determines that a given course of conduct is within the range of prudence (or, at least, is not imprudent), the fiduciary must (as opposed to can) follow the plan documents and, at least where the plan requires investment in employer stock, and must (as opposed to can) invest and stay invested in the stock.  This result starts very much to resemble a presumption in effect, but not as a matter of analytical structure.

Thus, this analysis is not really a Moench analysis, as it doesn't derive a free-standing presumption in favor of investing in employer stock from the penumbra of the network of ERISA provisions that facilitate and arguably encourage the holding of employer stock.  I think the approach I’m suggesting is more of a strict application of the plan-documents rule of 404(a)(1)(D), in the context of the inapplicability of the diversification rule to eligible individual account plans investing in employer securities.  The Moench approach may well effectively get you to the same place, but I think the two approaches are not at all structurally identical.

I would further suggest that the Supreme Court has laid the groundwork for this line of reasoning. MetLife, Kennedy, McCutchen and Himeshoff all emphasize the primacy of the plan document. To quote McCutchen, "The plan, in short, is at the center of ERISA."**

So maybe the Moench-ies have it right, from a result-oriented perspective?  I just think the approach that focuses on finding a presumption, rather than an approach that flows more naturally out of the statute as I've outlined above, may grate with the Court.  I’m only suggesting that the Moench presumption, with its arguably somewhat dissatisfying technical underpinnings, may not be the only way to get to a result that many of us think is the right one under ERISA.***

Having said all that, I take the point that the analysis I'm suggesting has not been a real focus of the discourse.  Rather, the focus has been on the identification of an implied presemption.  Indeed, Section 404(a)(1)(D) is not even cited in the Dudenhoeffer oral argument, and there's only a fleeting reference to the requirement in the plan at issue in Dudenhoeffer that the plan be invested in employer stock.

But I remain undaunted.  As Steven Tyler's said, referring back to an old saw while on his American Idol perch (and, thankfully, allowing me to loop all the way back to this post's title): "If I agreed with you, we'd both be wrong."
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* I’ll resist the inclination to say something like, “‘Moench’ a bunch of Fritos . . . .”

** I also think the DOL's FAB on a directed trustee's responsibilities (Field Assistance Bulletin 2004-03) is instructive here, even if not entirely apposite. The DOL essentially asks, at least as to pricing, how it's possible for anyone to be smarter than the market. Buy high sell low, anyone? If people are buying and selling at any given price on any given day, on what basis am I to conclude that they're necessarily wrong (indeed, irrational or at least imprudent)? The outside-the-range-of-prudence threshold seems like a pretty high bar, I would think.

*** The approach I’m suggesting could theoretically support dismissal at extremely early stages of the litigation (albeit maybe not necessarily with the extreme totally-out-of-court approach that has been pursued by the district court for the Southern District of New York in a number of recent stock-drop cases).