ERISA Litigation Roundup: Federal District Court Dismisses ERISA Stock-Drop Suit

On September 30, 2021, the U.S. District Court for the District of Connecticut dismissed an ERISA stock-drop lawsuit brought against alleged fiduciaries of Aetna, Inc.’s (Aetna’s) employee stock ownership plan (ESOP), holding that the plaintiffs failed to state a fiduciary breach claim under ERISA.  Radcliffe v. Aetna, Inc., No. 3:20-cv-01274, 2021 WL 4477408 (D. Conn. Sept. 30, 2021).

The plaintiffs in Radcliffe, all participants in Aetna’s 401(k) plan (and who invested their retirement savings in Aetna stock), alleged that Aetna and its parent company, CVS Health Corporation (CVS), breached their fiduciary duties under ERISA by failing to remove Aetna stock as an investment option under the plan while the stock price was artificially inflated. The plaintiffs alleged that the defendants failed to disclose non-public risks to the value of CVS’s stock (and thus to the value of Aetna stock units in the plan) related to CVS’s long-term care (LTC) business. After CVS took a goodwill impairment charge with respect to its LTC business, CVS’ stock price declined. The plaintiffs later filed suit, alleging that the defendants breached their fiduciary duties under ERISA by keeping the company stock in the plan while its price was artificially inflated.

The district court dismissed the plaintiffs’ claims in their entirety. As a threshold matter, the court held that the plaintiffs did not sufficiently allege that Aetna was a fiduciary with respect to the plan’s investment decisions because Aetna had delegated its duties to the Aetna Benefits Finance Committee (the Committee), which chose the plan’s investment options and had the sole discretion to change them. Thus, the Committee, not Aetna, acted in a fiduciary capacity with respect to the plaintiffs’ claims. The same was true of CVS, which had no authority or responsibility over the plan at all. As a result, the court dismissed the plaintiffs’ claims against both Aetna and CVS.

As for plaintiffs’ claims against the Committee, the court held that the plaintiffs failed to state a claim for fiduciary breach because all the alleged non-public information about the risks to CVS’ stock had already been disclosed by CVS in public filings with the Securities and Exchange Commission. Thus, the plaintiffs were already privy to the very information that they alleged signaled a decline in CVS’s stock price. As a result, the court held that the plaintiffs failed to allege there was any non-public information about the value of CVS’s stock that the Committee could have disclosed, as all the pertinent information about CVS’ LTC business was already in the public domain.

Faegre Drinker Perspective

The district court’s ruling is significant for two reasons. First, it reinforces the importance of delegating plan investment responsibilities from a 401(k) plan sponsor to an administrative committee so that any potential fiduciary liability for investment decisions rests with the committee, not the employer plan sponsor. Second, it joins the chorus of decisions rejecting ERISA stock-drop claims at the pleadings stage, particularly those based on claims that plan fiduciaries were privy to “inside information” that they failed to disclose.