Forcing a Participant to sell investments.

[katieinny]

Company A set up Plan A which permitted a great deal of investment flexibility. Company A was purchased by Company B and they would like to merge the Co. A plan into the Co. B plan. However, Co. B's plan does not permit as much investment flexibility. One person in Co. A's plan refuses to sell his off-the-wall investments. Can he be forced to do so?

[E as in ERISA]

Investments can be eliminated -- its done all the time. But the decision to eliminate certain investments is an exercise of fiduciary responsibility subject to ERISA 404. And participants sue for breach of fiduciary responsibility all the time.

[katieinny]

Are you saying that the new employer is breaching his fiduciary responsibility by refusing to accept investments that the prior plan permitted?

[mbozek]

Participants rarely win fid law suits if the plan admin follow ERISA and terms of the plan. An employer can eliminate odd or off the wall investment options by amending the plan to delete such options after plan A is merged with plan B. This is a settlor decision and does not involve any risk to a fiduciary because the decision to eliminate the option is made by the employer. Your client needs to get counsel involved-- you will not get a reliable answer on this message board.

[E as in ERISA]

I agree that the goal is to have certain actions characterized as "settlor" as opposed to "fiduciary," if possible. And therefore it is advisable to take action at the appropriate corporate level (e.g., the board) and in the appropriate format (e.g., the plan document) in order to be able to argue that the activity is a "settlor" one. Legal counsel should be consulted to assist in taking the proper action.

There are many lawsuits over investments. The question of where to draw the line between "settlor" and "fiduciary" has not been answered definitively -- it seems to be one of the biggest concerns of the day. (And management of plan assets is a typical fiduciary function.) So I think that fiduciary-type due diligence should also be performed even if the "settlor" amends the plan to eliminate investment options.

[mbozek]

K- The fid liability issues arise when the fids exercise discretion. I think Spink v. lockeed answered the question of what are the settlor obligations with regard to plan amendments. I dont know what kind of due dilligence needs to be done if the investments are risky or in unusal media. A plan sponsor is not required to oblige a single participant who prefers " off the wall investments". In the case of mergers it is common for the participants in the merged plan to switch investments to the media available in the acquiror's plan. The cutback rule of 411(d) (6) does not apply to investment availablity.

[E as in ERISA]

I don't think that Lockheed v. Spink answers every question about plan amendments. I think that the focus in that case is on the benefit structure. I'm not aware that the conclusion in that case has been applied in one involving investment decisions. In fact, one might argue that Lockheed could be used to support the proposition that this is an fiduciary function -- I believe it notes that management of plan assets is a fiduciary function. (Nothing to hang one's hat on, but worth noting)

When it comes to matter such as choosing the trustee and the investment manager and identifying the investments, I don't think a sponsor can absolve itself of all fiduciary liability simply by naming them in the document and claiming it was a "settlor" function. (Although I totally agree that one should do the most one can to get them characterized as "settlor" in order to preserve that argument).

Assuming the fiduciary rules apply, if investments are risky and happen to be valued very low right now, then it may not be "prudent" to force them to be sold right now -- it may be better to protect against large losses by allowing the participant to ride them out for some period of time. An employer is not required to oblige a single participant, but it is hindered by the fact that its predecessor allowed such investments in the first place and now it must consider what is the most prudent path for eliminating them from the plan.

When a plan is switching between investment advisors and funds, call me crazy but I would actually recommend that the employer give consideration to keeping all old and new investments open for at least some period of time. I'm not saying that it actually has to decide to do that, only that prudence requires that it give equal consideration to that alternative and have a good reason for not doing so (e.g., that "mapping" is adequate to prevent large losses).

[mbozek]

Lockeed v. Spink built upon an earlier Sup ct. case, involving the curtailment of welfare benefits by curtis wright corp. which held that plan participants do not have any right to prevent curtailment of plan benefits by an employer. I am not aware of any case that has held that a settlor decsion to amend a plan becomes a fid decison. I believe that one of the above cases reversed a lower ct decison that held that amending a plan can be a fid act. Similarily an employee has no right to a particular investment option under a plan any more than an employee has a right to a prospective benefit. If an employer can terminate a plan at any time as a settlor decision not subject to ERISA it can amend a plan to eliminate an investment option without violating ERISA. Fiduciary liability is determined by ERISA for persons who act as fiduciaries and trustees and I dont think that it can be extended to the selection of a fid without an amendment to ERISA.

Your argument against terminating a risky invesment option because its value is low and the particpant should be allowed to ride it out to recoup losses reflects a lack of understanding of vicarious liability under ERISA. If the risky investment declines further in value then the employee could sue the fid for the failure to curtail the investment because it was risky and it was imprudent to continue it. (I am not stating that the employee would prevail.) Many investment options which were down last year and were supposed to rebound by now (lucent, Cisco, intel come to mind) have only gone further into the hole. By not cutting off the investment option at the earliest opportunity, e.g., when it first becomes an option under the plan, the plan fid risks second guessing if the risky investment goes even further downhill. To paraphrase a supreme ct justice in a more important decision, a retirement plan is not a sucide pact.

[Steve72]

Mbozek: >>I am not aware of any case that has held that a settlor decsion to amend a plan becomes a fid decison<<

I don't know that the answer is as cut and dried as your response indicates. For example, the amendment of a profit-sharing plan into an ESOP is subject to the fiduciary rules. I realize that this is an extreme case, but it illustrates that the line between settlor and fiduciary functions can be blurred when plan investments are involved.

[E as in ERISA]

I think that I understand vicarious liability. What one does to protect oneself against vicarious liability is perform "due diligence."

I think that the bottom line is that employer's should have processes in place for decisions that potentially involve any fiduciary liability: E.g., conduct a meeting to discuss the issue, get advice from experts (investment, legal, etc., as applicable), perform any necessary research, analyze information obtained, weigh the alternatives, and then make a decision. The amount of time spent depends on the risk.

The amount of due diligence performed in this case may depend on whether the participant has $5,000 or $1,000,000 in his account. I would note that if the risky investment increases after the employer in value after it was eliminated, then the employee could sue the fiduciary for curtailing it. In either case, whether the employee wins or loses depends in part on what "due diligence" the employer performed in making the decision.

[mbozek]

Steve: I would be interested in the cite to ps/ ESOP conversion as a fid decision. Would the answer be different if the er terminated the ps plan and then adopts the ESOP?

K: I dont think the er needs to spend money on due dilligence which could be paid for by the participants in the plan as an admin expense if the plan is going to be amended to eliminate an odd investment option after a merger that benefits only one person. The ER could rely on the investment policy in the plan, adequate number of investment options or just the inherent right to limit investments which the plan permits.

I dont think there is any merit to the employee's claim to gains after the invesmtent is eliminated because plans terminate investment options all the time which later increase in value because of a change in investment climate. In the only case regarding fiduciary liability for performance of investment options under ERISA the court held that a fid is not required to be precient, just prudent in making decisions. There is less risk to an employer which can eliminate investment options as permitted under provisions for amending the plan since the terms of the plan are a condition of employment which can changed at any time without the consent of the employee.

[E as in ERISA]

Doesn't "prudence" mean exercise of "due diligence"?

[E as in ERISA]

I recognize the DOL's brief in Enron stretches the law in many way. But the DOL's comments are still worth considering in this context. They indicate that "settlor" protection may not always be claimed in matters involving plan investments:

"Defendants assert...that Plaintiffs do not challenge their discretionary acts as fiduciaries, but rather, challenge the design of the plans themselves and the acts of the plan settlers who wrote the plans' provisions. As discussed below, Defendants' argument is without merit. The investment and management of plan assets is inherently a fiduciary activity subject to ERISA's fiduciary duties. See ERISA § 3(21), 29 U.S.C. § 1102(21), (defining a fiduciary as a person who exercises any authority or control respecting management or disposition of plan assets). Moreover, in most instances, the plans did not require the Defendants to engage in the challenged conduct. Even where the plans arguably mandated Defendants' actions, ERISA § 404(a)(1)(D), 29 U.S.C. 1104(a)(1)(D), FORBIDS FIDUCIARIES FROM FOLLOWING THE PLAN DOCUMENTS IF DOING SO WOULD BE BE IMPRUDENT OR OTHERWISE VIOLATE ERISA." (emphasis supplied).

Accordingly, even if the sponsor amends the plan, any fiduciaries should observe the fiduciary requirements such as prudence/due diligence before effecting any plan provisions involving investments or investment management. I'm not saying a fiduciary will lose if they don't, just that it might be a lot easier to win...

[Steve72]

Mbozek:

See 29 CFR 2550.407d-6(a)(5). The regulation states that a conversion of an existing plan (which may include the termination of an existing plan) to an ESOP is subject to the fiduciary rules of ERISA and the exclusive benefit rules of the Code.

[E as in ERISA]

Ironically, today’s Benefits Buzz has a link to an article by Fred Reisch in Plan Sponsor re-iterating that “ERISA Section 404(a)(1)(D) requires that fiduciaries override the terms of a plan document if it would be imprudent to follow them.”

[E as in ERISA]

So, for the sake of the person originally posting the question, would anyone disagree with the statement: Even if the plan sponsor amends the plan to eliminate the investment options, any fiduciaries should observe prudence and diligence standards before following the terms of the plan document and disposing of the investments? (Or is this just another unreliable post on this message board by someone who doesn't understand fiduciary liability?)

[mbozek]

Requiring that a fid observe prudence rules after the er has amended the plan could put the fid on a collision course with the plan sponsor who took steps to remove the investment option from the fid's responsibility by an amendment. I dont think I would want to be the fid. Second remember all we are discussing is the elimination of one investment option which is described as risky to which only one employee objects to the elmiminatoin upon the merger of the plans. The fid for the acquiring plan can eliminate the investment option as incompatable with the acquiror's investment policy or because it does not benefit enough employees to make it an an economical invesmtment option to a with enough number of employees. Regarding the artilce, what are standards for imprudence in this case? Surely not extending an risky investment option to employees of the acquiror's plan cannot be viewed as imprudent. Othersiwe why bother reviewing investment options-- just go to directed brokerage accounts for all participants.

[E as in ERISA]

I would think that the employer would want to consider the fiduciaries' responsibilities and allow them to perform any necessary due diligence before executing those amendments (especially since many times the employer and/or its officers and its employees have fiduciary responsibilities). I can't tell you whether it's prudent to eliminate these investments or not -- prudence is a process not a conclusion.

[mbozek]

Two comments: Eliminating a risky investment option that benefits only one employee in a plan that is merged into the acquring employer's plan is not imprudent under any defintion of ERISA since the plan is not required to take any investment risk for the benefit of a single participant. The investment policy statement for the acquiring plan should reflect this position.

Two: Eliminating a risky investment by a plan amendment takes the decision out of the realm of fid responsibility and makes it a settlor decison which eliminates fid responsibility. The point behind making the elimination a settlor decision is to eliminate the need to make fid decisions and incur expenses to the sponsor. Do you really believe that a sponsor should incure additional cost in doing due dilligence review a risky investment that benefits one employee for the purpose of confirming that the investment can be eliminated in the unlikely event the participant sues the plan?

[E as in ERISA]

I don't think that we are going to come to agreement on this. I think that the prudence requirements apply when the fiduciaries effect the decision to eliminate all participants' rights to direct their accounts into a broad array of investments. I don't think that it's a question of whether to apply due diligence -- only how much. And it's not only a question of whether or not to eliminate the options -- but also what time period should be involved, etc. In today's market in a plan that has a variety of investments that have incurred various percentages of losses, fiduciaries might deem it prudent to allow participants a window of one or three or six or twelve months to research how they would like to re-invest the proceeds and to dispose of the former investments.

I understand that fiduciary responsibilities are observed at the plan level -- as they apply to all participants generally and not particular participants. The fiduciaries will be looking at the issues from an overall plan perspective. But although only one participant is balking, it may be that many participants were invested in risky investments that have suffered large losses. Or it may be that the participant has an exceptionally large balance (e.g., that he rolled a lot of money into the plan to take advantage of a brokerage window).

The fact that one participant has balked only means that at least one participant will be very unhappy with this decision and may pursue litigation.

[mbozek]

If several participants have sufferred losses then there is more reason for the acquiring employers plan not to permit the option to minimize risk - leave it with the acquired plan and go on without such an option after the merger is the best way to minimize risk. There are many risky funds out there that have lost 60- 70-80% of their value in the last two years and they will not come back. Allowing a risky fund into a plan which has more stable investments increases the risk to the plan fids because all participants in the acquiriors plan must be allowed to choose this risky investment option and will increase the pool of potential litigants. Keeping a risky investment out of the acquiror's plan is the least risky strategy. I will represent a plan sponsor any day on this issue against a disgruntled participant on these facts who weill have to retain and pay for counsel. I still dont know what the cause of action would be by the disgruntled participant. By the way if the money was contributed via a rollover then the participant can do a tax free rollover of the account to an IRA and continue investing in this risky fund outside the plan.

[Jon Chambers]

Originally posted by mbozek

Participants rarely win fid law suits if the plan admin follow ERISA and terms of the plan. An employer can eliminate odd or off the wall investment options by amending the plan to delete such options after plan A  is merged with plan B. This is a settlor decision and does not involve any risk to a fiduciary because the decision to eliminate the option is made by the employer. Your client needs to get counsel involved-- you will not get a reliable answer on this message board.

I have to say I agree with the last sentence of mbozek's original post. The comment applies equally to his opinions. Whether or not a participant wins a fiduciary lawsuit is probably not the issue. Nobody wins in a lawsuit, except possibly the lawyers. Forget about citing case law and regulations--we're in a new environment now, after Enron and numerous other cases. We're working in a litigation support capacity in several other cases that don't involve company stock. I agree with Katherine that cautious, prudent conduct is called for. If the employer can document and explain the rationale underlying the decision to remove the investment, I agree that potential liability is very small. Nonetheless, I recommend ensuring that a prudent process is followed, even if that costs some money.

[mbozek]

Prudence is a requirement for fiducaries. Plan sponsors who do not want to have risky investments in the plan can eliminate the investment by plan amendment because settlor decisions to amend plans are not subject to the prudence requirement of ERISA. This is settled law as rendered by the US Supreme Court in Jacobson v. Hughes, Lockeed v. Spink and the Curtis Wright cases. If you had read the facts you would had seen that the case involved the merger of a plan with a odd investment option ("Off the wall") which the acquiror did not want in its plan. There is nothing that requires that such an investment be included in the acquiror's plan just because ione employee likes it. I have been involved in many mergers where all of the options under the seller's plan were terminated and transferred to options under the buyer's plan. In fact the way to eliminate any prudence question is to not allow the investment as an option in the the aquiror's plan. My position is consistent with the existing law that allows a plan sponsor to make amendments to it plan to insure that it does not incure any risk that the sponsor does not want to assume since a participant has no right under ERISA to any particular investment option. Also I am still mystified as to what would be the ERISA claim by a participant if the investment was curtailed by an amendment as permitted under the terms of the plan [please explain]. I am also not sure of what the prudence process would be in this case and what would be the cost. If plan sponsor action to terminate a plan is not a fiduciary act then a decision to amend a plan to eliminate an option is not a fiduciary act.

[IRC401]

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I don't think that you are reading the cases correctly. Decisions re: plan investments are inherently fiduciary decisions, and to me the cases do not stand for the position that a sponsor can eliminate all fiduciary issues by way of the plan document.

If the plan sponsor eliminates an investment option, it is acting as a fiduciary, and it needs to make a prudent (by fiduciary standards) decision as to where the money will be invested. It shouldn't be that hard to meet that standard while eliminating one option. Nevertheless, prudent is more about procedure than results, and it would not be prudent to assume that the only needed procedure is a plan amendment.

[KJohnson]

As to further evidence of DOL's position, you might want to look at Footnote 27 in the preamble to the 404© regulations where DOL states that "the act of limiiting or designating investment options" is a fiduicary function "whether achieved through fiduciary designation or express plan language..."

[mbozek]

KJ: Preambles are not legally enforceable - they state only the opinion of the DOL and cannot overrule Sup Ct precedents. By the way the three Sup cases cases previously cited were handed down after the 404© regs were issued.

[KJohnson]

MJB-- I guess you missed the "As further evidence of the DOL's position ..." part of my prior post. DOL's position on this, I believe, has remained consistent.

404(a)(1)(D) still provides that the fiduciary duty to abide by a plan document only applies as long as the document is "consistent with" the provisions of Title I. What this actually means may be left up to the courts, but there appears to be little dobut about DOL's positon.

[mbozek]

401: If I am not stating the cases correctly please provide contrary authority. I understand your reservations but under the current precedents this is the law as applied by the Supreme ct. which lower courts are constrained to follow. As an example, the 2nd circuit court of appeals recently reversed a district ct opinion that the federal death penalty law as unconsititutional because of the risk that innocent persons could be executed. The appeals ct said that the district ct could not depart from existing precedents of the Supreme Ct because the law was settled that the death penalty law met all applicable guidelines for fairness.

Separately, under the Jacobson case, plan amendments regarding plan investments are not subject to fiduciary action because the employer bears investment risk under ERISA. Therefore, employer action to reduce investment risk is a settlor decision, the same as a decision to curtail benefits or terminate the plan. A fiduciary who disagrees with an employer decision on plan investments can always resign.

[E as in ERISA]

After the employer amends the plan, then the fiduciary will have to sell the investments. Those cases may protect the employer's act of amending the plan. But what will protect the fiduciary when it sells the investments? Answer: Performing due diligence before selling the investments....

[mbozek]

K: Under the facts as orignally described, the issue was the acquiror's plan had to accept all investments in plan A. The merger could provide that Plan B will not accept certain assets from Plan A. Also if a fiduciary does not feel that it can follow established precedents and a legally adopted plan amendment he /it should resign or be terminated by the sponsor not expending unnecessary resouces on trying to review established law.

[Jon Chambers]

Going back to my post, I never stated an opinion as to whether the decision to eliminate the investment was a fiduciary or settlor action; I merely indicated that it would be prudent to treat it as a fiduciary decision, since in the current environment, the DOL, plaintiff's counsel and others are taking expansive positions regarding the scope of fiduciary duties. See, for example, the First Union litigation (settled for $26 million), the SBC/Air Touch case, and Allison v. Bank One - Denver. Being right is sole consolation if it costs tens of thousands in legal defense costs to prove your point.

In fact, my opinion is that removing an investment option is a fiduciary act. I'm not going to argue case law, other than to say that everyone has a right to an opinion. You argued, by analogy, that since a plan termination (a settlor act) could remove all investment options, then a plan sponsor could remove any investment options within the scope of its settlor functions. But the analogy doesn't work, because in a plan termination, participants would have a right to a distribution, and could (presumably) continue their investment outside the plan. I agree that the acquiring company could have simply terminated the acquired company's plan and eliminated all investment options within the scope of its settlor functions. This route has timing and coverage implications that I won't go into here. I believe the original question stated that the plan's were being merged, and Katherine's reply stated that in this instance, fiduciaries of the acquiring company had a duty to consider the prudence of eliminating the option. In my opinion, Katherine's response was entirely correct.

The funny thing about this thread is that no one seems to disagree with the basic answer to the question. Sure, you can eliminate the investment. I agree that the risk of doing so is minimal. But I further believe that advising anyone that this is a settlor function, rather than a fiduciary function, is an aggressive and potentially dangerous interpretation of the law.

[mbozek]

It seems that the comments have gone far beyond the original question of whether a purchaser of a company can can limit investments options of assets transferred for the sellers plan to those which the buryer considers to be suitable and consistent with its funding policy. A plan sponsor can refuse to accept an investment option from another plan into the sponsor's plan which the sponsor deems to be unsuitable under a purchase agreement. The sponsor is not required, nor is the fiduciary required, to do any kind of due dilligence review since the asset is not part of the acquiror's plan.

[Jon Chambers]

OK, now we are getting really close to agreement. I have one final question: How could a prudent plan sponsor or other fiduciary "deem an investment option unsuitable" without doing any due diligence on the option? I guess they could not accept ANY assets from any other plan. But if they accept some, but not others, and do no due diligence, it strikes me that they would be acting in an arbitrary and capricious manner.

[E as in ERISA]

It’s settled law that decisions to establish a plan, amend the benefit structure, and terminate a plan are "settlor" decisions that do not create fiduciary responsibility. I don't disagree that Hughes v. Jacobson, Lockheed v. Spink, and the Curtiss-Wright case would support that conclusion. But none of them involve a decision to amend plan provisions relating to the investments held in the plan. In fact, in deciding that there was no fiduciary responsibility in the Hughes case, I think that the Court actually based it decision on the fact that the amendments related to the “composition or design of the plan” as opposed to “administration of the plan’s assets.” I'd be very, very comfortable standing before the Supreme Court and making that distinction.

[david rigby]

You may not believe this, but it's kind of fun for us non-lawyers to read lawyers arguing.

Of course, I make no claim about whether any arguments have swayed my opinion.

[mbozek]

I am still at a point where under ERISA a plan sponsor has no fiduciary obligation to accept any asset from another employer's plan into any plan it sponsors because the asset is not subject to any fiduciary rules (assuming for this argument that such rules apply to a settlor decision) until it is an asset of the sponsor's plan. Second refusing to take an asset that is not appropriate under the acquiror's plan does not require a prior due dilligence review by a fiduciary. For example a plan can refuse to accept an asset because it permits only quarterly transfers while the acquiror's plan uses daily valuation for all investments or because it benefits a small number of persons. If you follow your logic on fid responsibility then every plan that accepts rollovers will be required to conduct a due dilligence review before denying an odd asset transfer request (e.g., RE, mortgages, limited partnerships, futures, options, sector funds, individual stocks, brokerage accounts, foreign or non publicly traded companies) that are not currently permitted in the plan. I would like to know how many plan administrators would want to provide for such an review for rollovers

[KJohnson]

For anyone who is interested, this is the string cite from DOL's ENRON brief about the duty to ingore the terms of the Plan where the Plan's provisions would otherwise be contrary to Title I (including general prudence).

ERISA § 404(a)(1)(D) required Defendants to follow the terms of the plan document only "insofar as such documents and instruments are consistent with the provisions of [title I] and title IV" of ERISA. 29 U.S.C. § 1104(a)(1)(D). The Defendants had a duty under § 404(a)(1)(D) to ignore the terms of the plan document where those terms required them to act imprudently in violation of ERISA § 404(a)(1)(B). 29 U.S.C. § 1104(a)(1)(B). Central States, 472 U.S. at 568 ("trust documents cannot excuse trustees from their duties under ERISA"). The Fifth Circuit and other courts have uniformly held that ESOP fiduciaries must act prudently and solely in the interest of the participants and beneficiaries in deciding whether to purchase or retain employer securities despite plan language requiring the ESOP to purchase employer securities. See, e.g., Donovan v. Cunningham, 716 F.2d 1455, 1467 (5th Cir. 1983), cert. denied, 467 U.S. 1251 (1984) ("Though freed by Section 408 from the prohibited transaction rules, ESOP fiduciaries remain subject to the general requirements of Section 404"); Kuper v. Iovenko, 66 F.3d 1447, 1457 (6th Cir. 1995); Moench v. Robertson, 62 F.3d 553, 569 (3rd Cir. 1995), cert. denied, 516 U.S. 1115 (1996); Fink v. National Sav. Bank & Trust Co., 772 F.2d 951 (D.C. Cir. 1985) (ERISA's prudence and loyalty requirements apply to all investment decisions made by employee benefit plans, including those made by plans that may invest 100% of their assets in employer stock); Eaves v. Penn, 587 F.2d 453, 459-60 (10th Cir. 1978) ("While an ESOP fiduciary may be released from certain per se violations on investments in employer securities . . . in making an investment decision of whether or not a plan's assets should be invested in employer securities, an ESOP fiduciary, just as fiduciaries of other plans, is governed by the 'solely in the interest' and 'prudence' tests of §§ 404(a)(1)(A) and (B)"); Canale v. Yegan, 789 F. Supp. 147, 154 (D.N.J. 1992); Ershick v. Greb X-Ray, 705 F. Supp. 1482, 1487 (D. Kan. 1989), aff'd, 948 F.2d 660 (10th Cir. 1991) (plan terms authorizing ESOP fiduciary to invest up to 100% of plan assets in employer stock could be followed only if the investment decision was prudent); Central Trust Co. v. American Avents Corp., 771 F. Supp. 871, 874-76 (S.D. Ohio 1989) (ESOP trustee properly ignored pass-through voting provisions that would have prevented sale of an ESOP's stock where the trustee determined that such a sale would be prudent). This same rule applies to plans that are not ESOPs. Even if the plan document requires an investment, the fiduciaries must override it if it violates ERISA. Laborer's Nat'l Pension Fund v. Northern Trust Quantitative Advisors, Inc., 173 F.3d 313, 322 (5th Cir.) (investment manager must disregard plan if investing plan assets as required by plan would violate its duty of prudence), cert. denied, 528 U.S. 978 (1999); In re Ikon Office Solutions, Inc. Sec Litig, 86 F.Supp. 481, 492-493 (E.D. Pa. 2000); Arakelian v. National Western Life Ins. Co., 680 F. Supp. 400, 405-406 (D.D.C. 1987); see also Opinion Letter No. 90-05A, 1990 WL 172964, at * 3 (Mar. 29, 1990) (despite plan provisions to contrary, it is responsibility of fiduciaries to determine, based on all the relevant facts and circumstances, the prudence of investing large percentage of plan assets in qualifying employer securities); Opinion Letter No. 83-6A, 1983 WL 22495, at *1-*2 (Jan. 24, 1983) (same).

[E as in ERISA]

I don't think that this is a simple matter of one employer accepting assets from another employer's plan. This is a merger situation. Plan A will continue in existence in the form of Plan B. At some point an affirmative decision has to be made to eliminate the investments in Plan A.

[mbozek]

Not True. Merger agreements permit the acquiror to decide when and how to accept assets from another plan in its discretion, eg. the assets will not be transferred if the buyers plan has a disqualfiying provison. The other investments in PLlan A can be transferred to Plan B. There is no reason to make two plans liable for such an investment. Also at some point the participant will be able to take a withdrawal of the unacceptable investment , at termination, or if a PS plan, as an inservice withdrawal or if permissible Plan A can be terminated and the assets distributed to the participants.

[IRC401]

In the facts orginally presented, Company B acquired Company. We have a controlled gorup situation.

The employer may not terminate Plan A and force all of its participants to take a distribution if it sponsors a defined contribution plan (other than an ESOP and assuming that the 411(a)(11) regs are valid and that some participant has a vested interest in excess of $5000 and doesn't want to take a distribution).

Therefore, the employer has the choice of: (1) leaving the undesirable assets in Plan A, (2) moving the undesirable assets to Plan B, or (3) making a decision, which some of us believe to be a fiduciary decision, to convert the undesirable assets to different assets.