In the
United States Court of Appeals
For the Seventh Circuit
No. 11-2660
L INDA W HITE, on behalf of herself and
a class of persons similarly situated, and
C HARLENE L. R OUNDTREE,
Plaintiffs-Appellants,
v.
M ARSHALL & ILSLEY C ORPORATION, et al.,
Defendants-Appellees.
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 2:10-cv-00311-JPS—J.P. Stadtmueller, Judge.
A RGUED S EPTEMBER 13, 2012—D ECIDED A PRIL 19, 2013
Before M ANION, S YKES, and H AMILTON, Circuit Judges.
H AMILTON, Circuit Judge. When financier J. Pierpont
Morgan was asked what the stock market would do,
he answered, according to Wall Street legend, “It will
fluctuate.” Sometimes it fluctuates a lot, as the sponsor
of the retirement savings plan in this case understood
2 No. 11-2660
well. This case is about how federal law applies to such
fluctuations in the value of an employee stock owner-
ship plan.
This case is one in a series alleging that fiduciaries of
employee retirement savings plans acted imprudently by
allowing employees to choose to buy and hold an em-
ployer’s stock while it declined significantly in price. See,
e.g., Dudenhoefer v. Fifth Third Bancorp, 692 F.3d 410 (6th
Cir. 2012), petition for cert. filed, No. 12-751 (Dec. 14, 2012);
Lanfear v. Home Depot, Inc., 679 F.3d 1267 (11th Cir. 2012);
Pfeil v. State Street Bank & Trust Co., 671 F.3d 585 (6th Cir.
2012); Gearren v. The McGraw-Hill Cos., 660 F.3d 605 (2d
Cir. 2011); In re Citigroup ERISA Litigation, 662 F.3d 128
(2d Cir. 2011); Howell v. Motorola, Inc., 633 F.3d 552 (7th
Cir. 2011).
Such cases are governed by the federal Employee Re-
tirement Income Security Act of 1974, better known
as ERISA. 29 U.S.C. § 1001 et seq. As in most of these
cases, the plaintiffs here alleged that the plan fiduciaries
violated ERISA by continuing to offer employer stock
as an investment option while the stock price dropped,
in this case during the financial crisis of 2008-2009. In
the absence of allegations of misrepresentations or other
wrongful conduct not alleged here, plaintiffs in such
cases under ERISA must try to hit a very small and per-
haps non-existent target. The theory — that the employer
and plan fiduciaries violated their duty of prudence
under ERISA by continuing to offer employer stock as an
investment option — would require the employer and
plan fiduciaries, in this case and many similar cases, to
No. 11-2660 3
violate the retirement plan’s governing documents,
which employers and plan fiduciaries are also required
to follow under ERISA. The theory also seems to be
based often on the untenable premise that employers and
plan fiduciaries have a fiduciary duty either to out-
smart the stock market, which is groundless, or to use
insider information for the benefit of employees,
which would violate federal securities laws.
Defendant Marshall & Ilsley Corporation (M&I Bank)
offered its employees an individual account retirement
savings plan, which we call “the Plan.” The Plan allowed
employees to choose how to distribute their savings
among more than twenty investment funds with
different risk and reward profiles. The investment
funds offered by the Plan were selected by the Plan’s
fiduciaries. ERISA imposes on a plan’s fiduciaries a
duty of prudence, meaning that they must select only
prudent investment options to include in the plan.
29 U.S.C. § 1104.
One of the investment options in the Plan was the M&I
Stock Fund which consisted of M&I stock. This type
of fund is called an Employee Stock Ownership Plan or
ESOP. See 29 U.S.C. § 1107(d)(6). During the housing
market collapse and subsequent market crash in 2008
and 2009, M&I’s stock price dropped by approximately
54 percent, as did the value of employees’ investments
in the M&I Stock Fund.
The employees filed this putative class action under
ERISA, 29 U.S.C. § 1132(a), alleging that the Plan’s fidu-
ciaries violated their duty of prudence under section 1104
4 No. 11-2660
by continuing to offer the M&I Stock Fund as one of
the options in the Plan despite the stock’s poor perfor-
mance. In claims of imprudence against fiduciaries of
ESOPs, many federal courts have applied a presump-
tion that the fiduciaries acted prudently. The district
court applied this presumption of prudence, found that
plaintiffs’ allegations could not overcome it, and
granted the defendants’ motion to dismiss the case
under Federal Rule of Civil Procedure 12(b)(6) for
failure to state a claim for relief. White v. Marshall & Ilsley
Corp., Nos. 10-311, 10-377, 2011 WL 2471736 (E.D. Wis.
June 21, 2011). The district court did not reach the
issue of class certification.
Plaintiffs have appealed. The Secretary of Labor has
filed an amicus brief regarding the proper legal
standard in such cases, focusing in particular on the
presumption of prudence that we and other courts
have used in such cases. Even when we accept as true
plaintiffs’ allegations, as we must when we review
a dismissal under Rule 12(b)(6), we agree with the
district court that the Plan fiduciaries here benefit from
a presumption of prudence and that the plaintiffs’ al-
legations do not overcome that presumption. We there-
fore affirm the judgment of the district court.
I. Factual Allegations
A. The M&I Retirement Plan
M&I Bank sponsored a retirement savings fund for its
employees called the M&I Retirement Program. The Plan
No. 11-2660 5
was subject to ERISA’s rules governing employee retire-
ment savings plans, under which the Plan was considered
an Employee Individual Account Plan or EIAP because
employees selected the funds for investing their savings
from among options chosen by the Plan fiduciaries.
29 U.S.C. § 1107(d)(3).1 Under the Plan, employees
could choose how to allocate their investments among
the twenty-two funds in one-percent increments. Em-
ployees could shift their new contributions and existing
investments to different investment options at any time.
This arrangement was laid out in the Plan’s gov-
erning document. The Plan was implemented and man-
aged in accordance with the governing document by the
Plan’s fiduciaries. The named fiduciary of the plan was
M&I Bank itself, and the Plan was overseen by an In-
vestment Committee that consisted of several M&I di-
rectors, all of whom are defendants here.
The Plan’s governing document permitted the Invest-
ment Committee to select the funds that would be
available in the plan, but it specifically required that one
particular investment be one of the Plan’s investment
funds — the M&I Stock Fund. Plan § 16.02(b). The M&I
Stock Fund consisted entirely of M&I’s common stock,
apart from a small amount of cash or money market
funds to meet immediate cash needs. This type of invest-
ment fund — one investing primarily in the employer’s
1
The Plan is a “defined contribution” plan under ERISA
because the employees bear the risks of loss and benefit
from gains on their invested contributions. 29 U.S.C. § 1002(34).
6 No. 11-2660
stock — is considered an Employee Stock Ownership
Plan or ESOP under ERISA. 29 U.S.C. § 1107(d)(6). The
Plan’s governing document required that the M&I Stock
Fund be offered in the Plan and that it invest in M&I
stock at all times, regardless of any “reversals of fortune.”
Regarding the prospect of “reversals of fortune,” the
Plan used strong language. It recognized the likelihood
of significant declines in stock price from time to time,
but took a long-term view and directed the Plan
fiduciaries to allow for alignment of the interests of em-
ployees and the corporation:
Marshall & Ilsley Corporation, as the settlor of the
Plan and the Trust, hereby declares that its intent and
purpose in creating the M&I Fund is to align the
interests of Plan Participants with Marshall & Ilsley
Corporation. Marshall & Ilsley Corporation believes
that its success as an entity and the performance of
the M&I Fund will both be enhanced and facilitated
in the long run by such alignment. At the same
time, Marshall & Ilsley Corporation recognizes that
the performance of a business fluctuates and the
valuation of stock fluctuates. As a result, it is possible
that M&I’s business and the value of the M&I Fund could
decline significantly (even to the point where Marshall &
Ilsley Corporation’s ongoing viability comes into ques-
tion). Nevertheless, Marshall & Ilsley Corporation,
as the settlor of the Plan and Trust, intends and de-
clares that neither the Committee nor any other Plan
fiduciary shall have any authority or ability to cause
the M&I Fund to be invested in anything but M&I
No. 11-2660 7
stock, except for liquidity needs as discussed in para-
graph (b) above. Marshall & Ilsley Corporation
believes that, should it suffer reversals of fortune,
the alignment of the interests of Plan Participants and
Marshall & Ilsley Corporation may be the very thing
which will enable Marshall & Ilsley Corporation to again
prosper. In sum, Marshall & Ilsley Corporation, as
settlor of the Plan and Trust, hereby declares that it
is its intent and command that there can be no
change in circumstances or event (no matter how dire)
which would allow the Committee or any other
Plan fiduciary to shift investment of the M&I Fund
into investments other than M&I stock (except for
liquidity needs as discussed in paragraph (b) above).
Plan § 16.02(f) (emphases added); see also § 16.02(b).
Thus, the Plan’s governing document required the fidu-
ciaries to maintain the M&I Stock Fund under all cir-
cumstances, “no matter how dire.”
B. Allegations of Imprudence
Plaintiffs allege that M&I and the Plan fiduciaries
breached their duty of prudence under ERISA by con-
tinuing to offer the M&I Stock Fund as an investment
option in the Plan during a period of significant de-
cline in the market value of M&I stock. Like many other
financial institutions in 2008 and 2009, M&I Bank
suffered significant losses in the wake of the collapse
of the housing market and the financial crisis of the
autumn of 2008 and following. Plaintiffs claim that
amidst this turmoil, the Plan fiduciaries should have
8 No. 11-2660
violated the terms of the Plan, sold the M&I stock held
by the Plan, and removed the M&I Stock Fund as one of
the options in the Plan because M&I stock was over-
valued and too risky an investment for retirement savings.
According to plaintiffs, M&I’s problems began when
M&I expanded too quickly into risky loans outside its
familiar geographic area and its usual loan types. Many
of these loans failed, which led to significant net losses
and credit-quality deterioration and forced the bank to
tap deeply into capital reserves. Observers and analysts
recognized that M&I was in poor financial condition
at the end of 2008. They repeatedly downgraded M&I
bonds and stock because of the poor quality of the loans
in M&I’s portfolio. Plaintiffs allege that these problems
caused the price of M&I stock to drop dramatically
and “created dire financial circumstances” that would
inevitably result in significant losses to plan participants,
Complaint ¶ 143, or at least increase the riskiness of
the investment to intolerable levels. Complaint ¶ 75.
The Complaint identifies several assessments of
M&I’s financial condition that plaintiffs allege indicated
the riskiness of M&I’s stock: in 2008 M&I’s stock was
downgraded by four major investment banks; in
November 2008 M&I received federal funds as part of
the Troubled Asset Relief Program (TARP); in Decem-
ber 2008 Audit Integrity identified M&I as a “very risky
company;” by April 2009 six percent of M&I’s loans
were nonperforming, and on August 14, 2009 Bloomberg
News noted that M&I was one of several banks with
at least five percent “toxic” loans and quoted a finance
No. 11-2660 9
expert as saying that at five percent toxicity, “chances
are regulators have them classified as being in unsafe
and unsound condition;” on September 14, 2009 the
Pittsburgh Tribune Review opined that “the biggest
loser in the S&P 500 this year is Marshall & Ilsley
Corp.;” and by April 2010 M&I reported its sixth con-
secutive quarter of loss.
Plaintiffs sought compensation for loss of value in
their retirement savings during the class period from
November 10, 2006 to April 21, 2010.2 In the district
court, plaintiffs alleged and argued that the fiduciaries
failed to provide beneficiaries with accurate informa-
tion about the company’s financial condition, and that
M&I failed to monitor other fiduciaries adequately
and failed to provide them with accurate information.
Plaintiffs have not pursued those theories on appeal.
Plaintiffs focus all their attention on appeal on their
claim for breach of the duty of prudence.
From the beginning of the class period to the end of
the period, M&I stock dropped 54 percent, from $46.92
per share to an adjusted value of $21.43 per share.
Appellee Supp. App. 11-30. This price is adjusted to
include both the value of M&I stock and the value of
2
Unlike plaintiffs suing for securities fraud, plaintiffs can sue
under ERISA even if they simply held their investments. There
is no purchase or sale requirement for fiduciary duty claims
under ERISA. Compare 15 U.S.C. § 78j and Blue Chip Stamps
v. Manor Drug Stores, 421 U.S. 723 (1975), with 29 U.S.C.
§§ 1104(a)(1), 1109.
10 No. 11-2660
the stock of two spinoff entities — Metavante and FIS —
whose stock M&I shareholders were permitted to
retain when those stocks spun off from M&I. The Plan
was also amended to allow the M&I Stock Fund to hold
those two stocks. Thus, while M&I’s nominal stock price
at the end of the proposed class period was $9.94,
the parties agree that the total value of a shareholder’s
investments from one share of M&I stock should be
adjusted to include the converted spin-off shares, which
was $21.43 at the end of the class period.3
During the class period, M&I stock bottomed out at an
unadjusted nominal price of $3.11 per share on March 5,
2009. Id. In a deal announced December 17, 2010, Bank
of Montreal (BMO) agreed to acquire M&I Bank for
$7.75 per share, an approximate 33 percent premium over
M&I’s nominal closing stock price on December 16,
2010 of $5.79.
3
When Metavante split off from M&I on November 2, 2007,
shareholders received .333 shares of Metavante stock for each
share of M&I stock. When Metavante was acquired by FIS on
October 1, 2009, Metavante shareholders received 1.35 shares
of FIS stock for each share of Metavante stock. These calcula-
tions assume that M&I shareholders maintained ownership of
the transferred stock through both spinoffs, as employees
were permitted to retain their Metavante stock when it spun
off from M&I. The adjusted M&I price includes the nominal
price of M&I itself plus the added value of the Metavante
and then FIS stock. See Supp. App. 30.
No. 11-2660 11
II. Analysis
We review de novo a district court’s grant of a motion
to dismiss under Federal Rule of Civil Procedure 12(b)(6),
and we take all factual allegations as true and draw
all reasonable inferences in favor of the plaintiffs. Pugh
v. Tribune Co., 521 F.3d 686 (7th Cir. 2008). Courts can
take judicial notice of public stock price quotations
without converting a motion to dismiss into one for
summary judgment. E.g., id. at 691 n.2. We can also con-
sider ERISA plan documents that were attached to the
complaint or referenced in it without converting the
motion to one for summary judgment. See Venture Associ-
ates Corp. v. Zenith Data Sys. Corp., 987 F.2d 429, 431 (7th
Cir. 1993).
A. Fiduciary Duties Under ERISA
ERISA’s primary goal is to protect employee interests
in pensions, retirement savings, and other benefit plans.
29 U.S.C. § 1001(b); Shaw v. Delta Air Lines, Inc., 463 U.S.
85, 90 (1983); (“ERISA is a comprehensive statute de-
signed to promote the interests of employees and their
beneficiaries in employee benefit plans.”). To accom-
plish this goal, ERISA imposes duties on the
fiduciaries who manage plans. These duties include
duties to invest prudently, to comply with plan docu-
ments, and to diversify investments. 29 U.S.C.
§ 1104(a)(1)(B), (C), (D). This last duty, to diversify, runs
counter to the purpose of ESOPs, which by definition
concentrate investment in a single employer stock. See
12 No. 11-2660
Steinman v. Hicks, 352 F.3d 1101, 1104 (7th Cir. 2003). But
Congress favors ESOPs as a policy matter because
they provide a way for employers to align employee
and management interests. See Tax Reform Act of 1976,
Pub. L. No. 94-455, § 803(h), 90 Stat. 1520, 1590 (1976)
(noting Congress’s interest in “encouraging employee
stock ownership plans as a bold and innovative method
of strengthening the free private enterprise system”). To
preserve and encourage ESOPs, Congress exempted
fiduciaries of ESOPs from the duty to diversify and
limited the duty of prudence so as not to require diver-
sification for such plans. 29 U.S.C. § 1104(a)(2).
The other ERISA duties — to manage retirement plans
prudently and to follow plan documents — still apply
to ESOP fiduciaries and are relevant here. Section 1104
is entitled “Prudent man standard of care.” It requires
fiduciaries to discharge their duties for the purposes
of providing benefits to participants and their bene-
ficiaries, 29 U.S.C. § 1104(a)(1)(A)(i), and to act “with
the care, skill, prudence, and diligence under the cir-
cumstances then prevailing that a prudent man acting
in a like capacity and familiar with such matters would
use in the conduct of an enterprise of a like character
and with like aims,” § 1104 (a)(1)(B). This duty requires
fiduciaries to select only prudent investments for an
employee individual account plan, Howell v. Motorola,
Inc., 633 F.3d 552, 567 (7th Cir. 2011), though without
providing specific guidance as to what it means for an
investment option to be prudent. Complicating matters
further, section 1104 also requires fiduciaries to act “in
accordance with the documents and instruments gov-
No. 11-2660 13
erning the plan insofar as such documents and instru-
ments are consistent with the provisions of this sub-
chapter and subchapter III of this chapter.” 29 U.S.C.
§ 1104(a)(1)(D).4
B. Fiduciary Duties for Employee Stock Ownership Plans
ESOP fiduciaries must comply with the statutory duties
both to act prudently and to comply with the plan’s
governing documents unless the documents are incon-
sistent with ERISA. In the context of ESOPs, plan docu-
ments and the duty of prudence may point fiduciaries
in different directions. As here, ESOPs’ governing docu-
ments typically direct fiduciaries to invest primarily in
employer stock, creating a duty under section 1104(a)(1)(D)
to follow the plan documents and to maintain that in-
vestment or investment option. But if the company’s
viability is in jeopardy, the employer’s stock may not be
4
This statutory duty originates in trust law, which requires a
trustee to act in accord with the terms of the trust. Restate-
ment (Third) of Trusts § 91 (2007); see also Lanfear v. Home Depot,
Inc., 679 F.3d 1267, 1280-81 (11th Cir. 2012) (citing Restatement
§ 91 in analyzing challenge to ESOP fiduciaries). Trust law
serves as the basis for much of ERISA, see Firestone Tire &
Rubber Co. v. Bruch, 489 U.S. 101, 110 (1989), though “trust law
does not tell the entire story,” because, “[a]fter all, ERISA’s
standards and procedural protections partly reflect a congres-
sional determination that the common law of trusts did not
offer completely satisfactory protection.” Varity Corp. v.
Howe, 516 U.S. 489, 497 (1996).
14 No. 11-2660
a prudent investment. In such cases, employees might
argue that the statutory duty of prudence requires a
fiduciary to remove the employer stock fund as an
option for employee investments or to redirect that fund
to other stocks. When an employer is in poor financial
condition and its stock price is falling, the mandates to
follow plan documents and to act prudently might
thus pull fiduciaries in two opposite directions: both to
keep the employer stock option and to remove it. This,
at least, is the theory on which so many ESOP cases
have been built.
Plaintiffs allege that there was such a conflict here. The
M&I Plan fiduciaries kept the M&I Stock Fund as an
option throughout M&I stock’s descent until the ulti-
mate acquisition by the Bank of Montreal. The plaintiffs
claim that in doing so, the fiduciaries violated the
duty of prudence. But if the fiduciaries had done the
opposite — removed the fund when M&I’s stock
price was low — the plaintiffs could have claimed that
the same fiduciaries were liable for the gains employees
missed when M&I’s stock price subsequently increased.
In that case, the claim would be that the fiduciaries vio-
lated the Plan’s governing documents by removing the
M&I Stock Fund as an investment option. For example,
after M&I stock reached its lowest point in the proposed
class period, it increased in value by more than 150
percent by the end of the class period — from an adjusted
low price of $8.46 to an adjusted price of $21.43 — a gain
that was generally in line with the broader market re-
covery. If the fiduciaries had chosen to violate the
terms of the Plan and had forced a sale of employees’ M&I
No. 11-2660 15
stock at the lowest point, the employees would have
lost out on the later increase in value and would seem to
have had viable claims under ERISA for the fiduciaries’
failure to comply with the terms of the Plan document.
To the extent that courts allow liability for either fol-
lowing plan documents or departing from them, fidu-
ciaries could be liable either for the company stock’s poor
performance if they continue to invest in employer
stock, or for missing the opportunity to benefit from
good performance if they do not. This logic puts ESOP
plan fiduciaries in a precarious position that threatens to
make them guarantors of good investment performance.
We have referred to this precarious position as sitting
on a “razor’s edge.” Armstrong v. LaSalle Bank National
Ass’n, 446 F.3d 728, 733 (7th Cir. 2006). Such a high ex-
posure to litigation risks in either direction could dis-
courage employers from offering ESOPs, which are
favored by Congress, or even from offering employee
retirement savings plans altogether. See generally Varity
Corp. v. Howe, 516 U.S. 489, 497 (1996) (courts inter-
preting ERISA must consider several goals of Congress,
including not unduly discouraging employers from
offering welfare benefit plans in the first place);
Hockett v. Sun Co., 109 F.3d 1515, 1522, (10th Cir. 1997)
(same for retirement plans).
C. The Moench Presumption
Courts have taken this precarious position into
account when deciding how to apply ERISA’s duty of
prudence to ESOPs when the employer’s stock price
16 No. 11-2660
drops significantly enough to provoke litigation. Be-
ginning with Moench v. Robertson in the Third Circuit
and continuing in many cases that followed, federal
courts have tempered the risk of liability for fiduciaries
in these circumstances by applying a presumption that
the fiduciaries acted prudently. In Moench, the Third
Circuit considered whether fiduciaries of an ESOP
violated their duty of prudence by continuing to invest
employee funds in company stock throughout the com-
pany’s descent toward eventual bankruptcy. 62 F.3d 553
(3d Cir. 1995).
Moench involved a type of retirement savings plan
different from the one here. In Moench, the ESOP did not
give employees a choice among different investments.
It was instead a stand-alone fund, and its primary pur-
pose was to provide employees the opportunity to
invest in employer stock. The fund required the
fiduciaries to invest the fund in employer stock, and
plaintiffs alleged it was imprudent to continue to invest
that fund in employer stock. In the case of M&I Bank, by
contrast, the employer stock fund was just one of many
options available for employees to choose among in
their retirement savings plan, and plaintiffs alleged
that fiduciaries breached their duty of prudence by
merely offering the ESOP as one of the funds. Courts
facing prudence claims where ESOPs allow such em-
ployee choice similarly apply the Moench’s presumption.
See Lanfear v. Home Depot, Inc., 679 F.3d 1267 (11th
Cir. 2012); In re Citigroup ERISA Litigation, 662 F.3d 128
(2d Cir. 2011). In view of the choices available to em-
ployees, the reasons supporting the Moench presump-
tion seem to apply with even more force in such cases.
No. 11-2660 17
The court in Moench acknowledged the tension
inherent between ERISA’s duty of prudence and the
ESOP’s direction to invest in employer stock. The Moench
court held that plan language directing the fund to be
invested primarily in employer stock did not necessarily
doom a plaintiff’s claim that the fiduciary breached the
duty of prudence by continuing to invest in it. Instead,
the court attempted to balance the potentially con-
flicting directions by giving fiduciaries managing ESOPs
a degree of deference that is high but not complete.
The court held that
an ESOP fiduciary who invests the assets in
employer stock is entitled to a presumption that it
acted consistently with ERISA by virtue of that deci-
sion. However, the plaintiff may overcome that pre-
sumption by establishing that the fiduciary abused
its discretion by investing in employer securities.
62 F.3d at 571.
Adding more specific content to this reasoning, the
Moench court explained that a fiduciary would be found
to have abused its discretion by continuing to permit
investment in the employer’s stock only if “the ERISA
fiduciary could not have reasonably believed that con-
tinued adherence to the ESOP’s direction was in
keeping with the settlor’s expectations of how a prudent
trustee would operate.” Id. Thus, under Moench, courts
presume that where plan language directs fiduciaries
to offer employer stock, an ESOP fiduciary’s decision to
continue offering employer stock is prudent unless the
plaintiffs show that, despite the instructions in the plan,
18 No. 11-2660
the circumstances were so compelling that no rea-
sonable fiduciaries would have thought they should
continue to offer the stock as directed in the plan. The
plaintiff must show that, “ ‘owing to circumstances
not known to the settlor and not anticipated by him
[the making of such investment] would defeat or sub-
stantially impair the accomplishment of the purposes of
the trust.’ ” Id., quoting Restatement (Second) Trusts
§ 227 comment g.
This general approach, known as the “Moench presump-
tion,” has been widely adopted by other circuits in cases
alleging imprudence by either investing in an ESOP or
allowing employees to choose to do so. See Lanfear v. Home
Depot, Inc., 679 F.3d 1267, 1280-81 (11th Cir. 2012) (col-
lecting cases); In re Citigroup ERISA Litigation, 662 F.3d
128, 138 (2d Cir. 2011) (adopting Moench presumption
because “it provides the best accommodation between
the competing ERISA values of protecting retirement
assets and encouraging investment in employer stock”);
Quan v. Computer Sciences Corp., 623 F.3d 870, 881 (9th
Cir. 2010) (“if properly formulated, the Moench presump-
tion can strike the appropriate balance between the em-
ployee ownership purpose of ESOPs and other EIAPs,
and ERISA’s goal of ensuring proper management of
such plans”); Kirschbaum v. Reliant Energy, Inc., 526 F.3d
243, 254 (5th Cir. 2008) (“The Moench presumption
logically applies to any allegations of fiduciary duty
breach for failure to divest an EIAP or ESOP of company
stock.”).
Courts applying the Moench presumption have held
that plaintiffs seeking to overcome the presumption
No. 11-2660 19
must allege and ultimately prove that the company faced
“impending collapse” or “dire circumstances” that could
not have been foreseen by the founder of the plan. See,
e.g., Citigroup, 662 F.3d at 140; Quan, 623 F.3d at 882
(“plaintiffs must therefore make allegations that ‘clearly
implicate[ ] the company’s viability as an ongoing con-
cern’ . . .”); Kirschbaum, 526 F.3d at 255-56 (affirming
summary judgment for defendant where no evidence
showed that company’s “viability as a going concern
was ever threatened, nor that [its] stock was in danger
of becoming essentially worthless”). A significant de-
cline in stock price is not enough, unless perhaps it is
combined with other evidence of impending collapse,
mismanagement, or internal conflicts of interest. See
Quan, 623 F.3d at 884 (“ ‘[m]ere stock fluctuations, even
those that trend downward significantly, are insufficient
to establish the requisite imprudence to rebut the
Moench presumption’ ”), quoting Wright v. Oregon Metal-
lurgical Corp., 360 F.3d 1090, 1099 (9th Cir. 2004); see
also Moench, 62 F.3d at 572 (vacating grant of summary
judgment for defendants where stock drop was accom-
panied by insider knowledge of impending collapse
and insider conflicts of interest, and remanding for
further proceedings in light of presumption of prudence).
Our circuit has used the Moench presumption in
deciding imprudence claims against ESOP and EIAP
fiduciaries. In Howell v. Motorola, Inc., 633 F.3d 552 (7th
Cir. 2011), we considered whether fiduciaries of an
EIAP acted prudently in continuing to offer employer
stock as one of eight investment options in the plan.
In affirming summary judgment for the defendant fidu-
20 No. 11-2660
ciaries, we acknowledged the Moench presumption
for traditional ESOPs and noted that the defendants’
decision to keep company stock as one option “must
be evaluated against that backdrop.” Id. at 568. In
Armstrong v. LaSalle Bank, 446 F.3d 728 (7th Cir. 2006),
we reviewed an ESOP trustee’s decision deferentially,
noting that although we typically do not defer to fiducia-
ries under ERISA, “a decision that involves a balancing
of competing interests under conditions of uncertainty
requires an exercise of discretion, and the standard of
judicial review of discretionary judgments is abuse of
discretion.” Id. at 733. In that case, though, we reversed
summary judgment in favor of the trustee of an ESOP
whose stock was not publicly traded and whose em-
ployees did not have choices about investing in the
ESOP. There were genuine issues of fact concerning
whether the fiduciary actually exercised its discretion
in taking the actions at issue.
We have suggested that plaintiffs in ESOP cases
under ERISA can overcome the Moench presumption of
prudence by showing that fiduciaries’ actions created
excessive and unreasonable risk for employees, given all
the relevant circumstances, in addition to the showing
of “dire circumstances” or “impending collapse” recog-
nized by other circuits. In two cases addressing
prudence challenges to the management of single
ESOP funds (not EIAPs offering employer stock as one
option, as here), we emphasized the relevance of the
amount of risk the fiduciaries imposed upon the partici-
pants. In Steinman v. Hicks, 352 F.3d 1101 (7th Cir. 2003),
we affirmed summary judgment for fiduciaries. We
No. 11-2660 21
hypothesized, though, that prudence might require
fiduciaries to diversify employer stock funds in circum-
stances presenting unusually severe financial risks to
participants: for example, if all plan participants were
close to retirement, participants held most of their retire-
ment savings in the ESOP, all funds were invested in
the employer stock, and the employer’s stock was con-
verted into another company’s stock with greater
volatility and bankruptcy risk. Id. at 1106.
In Summers v. State Street Bank & Trust Co., 453 F.3d 404
(7th Cir. 2006), we again affirmed summary judgment
for fiduciaries of an ESOP after the company (United
Airlines) went into bankruptcy. We reasoned that the
duty to abandon a preference for employer stock is
based on how much risk the employer’s situation
imposes on the employees. Whether risk is excessive
would depend on “the amount and character of the em-
ployees’ other assets.” Id. at 411. In Howell, we extended
this risk analysis to a challenge to the offering of an
ESOP in an EIAP, noting that where several other in-
vestment options were available to participants, “no
participant’s retirement portfolio could be held hostage
to [the company’s] fortunes.” 633 F.3d at 569.
In this case, we again follow the reasoning of Moench
and its progeny. With inevitable fluctuations in the
stock market, ERISA’s simultaneous demands to comply
with plan documents and to exercise prudence in
choosing investment options for plan participants can
place fiduciaries on a razor’s edge. If ESOPs are to
fulfill their purposes, fiduciaries who invest in em-
22 No. 11-2660
ployer stock, or who allow employees to choose to invest
in it, in compliance with the terms of the plan need sub-
stantial protection from liability for doing so. Without
this shield, the duty of prudence would leave fiduciaries
exposed to liability based on 20-20 hindsight for mere
swings in the market or other foreseeable circumstances
in which reasonable fiduciaries and other investors
could easily disagree about the better course of action.
This potential conflict for ESOP fiduciaries leads us to
afford them significant deference when their prudence
is challenged for complying with plan requirements.
In the absence of some other sort of wrongdoing, no
longer alleged here, the standard for making a showing
of imprudence by fiduciaries of an ESOP or EIAP
should be high. The fiduciaries’ role at the intersection
of the duties to act prudently and to follow plan docu-
ments exposes them to liability for either following or
not following plan directions in cases like this.
Plaintiffs and the Secretary of Labor urge us not to
apply a presumption of prudence here or, in the alterna-
tive, to make it easier for plaintiffs to overcome the pre-
sumption either by relaxing the standard required to
overcome it or by treating the presumption as an evi-
dentiary burden rather than a pleading requirement.
We decline to adopt these positions.
As we have explained, the Moench presumption is
appropriate in this context, where the dual requirements
of ERISA — to comply with plan language and to act
with prudence — threaten to place ESOP fiduciaries on
a razor’s edge. As to its application at the pleading stage,
No. 11-2660 23
the presumption of prudence is not an evidentiary stan-
dard but a substantive legal standard of liability and
conduct. Thus, we agree with the Second, Third, and
Eleventh Circuits that a claim against ESOP fiduciaries
alleging a violation of the duty of prudence may be dis-
missed at the pleading stage if the plaintiffs do not
make allegations sufficient to overcome the presumption
of prudence. See Lanfear v. Home Depot, Inc., 679 F.3d
1267, 1281 (11th Cir. 2012) (“The Moench standard of
review of fiduciary action is just that, a standard of
review; it is not an evidentiary presumption. It applies
at the motion to dismiss stage as well as thereafter.”);
In re Citigroup ERISA Litigation, 662 F.3d 128, 139 (2d
Cir. 2011) (“The ‘presumption’ is not an evidentiary pre-
sumption; it is a standard of review applied to a
decision made by an ERISA fiduciary.”); Edgar v. Avaya,
Inc., 503 F.3d 340, 349 (3d Cir. 2007) (affirming dismissal
on the pleadings and finding Moench presumption is
appropriately applied at pleading stage; there is “no
reason to allow this case to proceed to discovery
when, even if the allegations are proven true, [the
plaintiff] cannot establish that defendants abused
their discretion”).
We also reject the standard for overcoming the pre-
sumption of prudence urged upon us by the Secretary
and plaintiffs — the same standard adopted by the
Sixth Circuit in Pfeil — that plaintiffs can overcome the
presumption by showing that “a prudent fiduciary
acting under similar circumstances would have made a
different investment decision.” Pfeil v. State Street Bank &
Trust Co., 671 F.3d 585, 591 (6th Cir. 2012). We do not
believe the presumption would sufficiently protect fi-
24 No. 11-2660
duciaries facing conflicting demands if it could be over-
come so easily. Plaintiffs and the Secretary argue here
that under the Sixth Circuit’s standard, plaintiffs could
overcome the presumption by merely finding a finance
expert who could, with the benefit of hindsight, claim
that he would have made different investment deci-
sions or chosen different investment options than the
defendant fiduciaries did. If the Moench presumption
were that easy to rebut, it would serve little purpose.
ESOP fiduciaries would become insurers against loss
from significant stock market losses. Showing that
another investor would have invested differently does
not shed meaningful light on the conduct of the
defendant fiduciaries when faced with instructions to
invest in employer stock, and to allow employees to
do so, during inevitable but unpredictable periods of
declining stock prices.5
5
Recall that every time one investor sells a security that has
fallen in price recently, another investor buys it in the hope
that its price will increase. We do not intend to exaggerate
the difference between our view and that of the Sixth Circuit.
We do not necessarily disagree with the alternative holding in
Pfeil that the plaintiffs in that case overcame the Moench pre-
sumption by alleging that the plan fiduciaries actually vio-
lated the terms of the plan. The plan in that case required
divestment of employer (General Motors) stock if there was
“a serious question concerning [General Motors’] short-term
viability as a going concern without resort to bankruptcy
proceedings.” 671 F.3d at 592. The plaintiffs alleged that
the company’s independent auditors had stated “substantial
(continued...)
No. 11-2660 25
Instead, plaintiffs must show that no reasonable fidu-
ciaries would have thought they were obligated to
continue offering company stock. See Moench, 62 F.3d
at 571. Sometimes ERISA plaintiffs — including the
plaintiffs here — advance two theories to explain why
offering employees the option of investing in employer
stock might be imprudent. First, they may claim that the
stock is overvalued and that investors are bound to lose
money when the market inevitably corrects the price
downward. Second, they may claim that the stock is
excessively risky because, even if the market is pricing
it correctly, the stock may be subject to price swings
that certain investors cannot tolerate. ESOP participants
often advance these theories after the employer’s stock
experiences a significant drop, claiming that the em-
ployer’s “dire circumstances” put the plan fiduciaries
on notice both that the stock was overvalued and that
the stock was too risky.
We have fundamental doubts about the viability of
ESOP prudence claims based on either theory, at least
where (a) the employer’s stock is publicly traded in an
efficient market (meaning participants could have ob-
served the dire circumstances themselves and acted
accordingly) and (b) the employer’s stock is only one
investment option for employees who can shift their
5
(...continued)
doubt” about the company’s ability to continue as a going
concern at least five months before the fiduciaries began
to divest employer stock. Id.
26 No. 11-2660
investments with relative ease (and thus the stock
imposes little risk upon employee-investors). In cases
based on alleged overvaluation, claims that fiduciaries
imprudently complied with plan documents to permit
employees to buy and hold employer stock tend to be
based on arguments that fiduciaries either: (1) failed to
anticipate how their company or stock value would fare
in the future, (2) failed to use non-public information
available to them to increase the benefits to employees,
or (3) failed to outsmart the rest of the market. None
of these are acceptable bases for holding fiduciaries
liable for loss.
The first is simply a lack of omniscience and foresight.
That is not a basis for finding a breach of fiduciary
duty. See DeBruyne v. Equitable Life Assurance Society, 920
F.2d 457, 465 (7th Cir. 1990) (refusing to find im-
prudence simply because fund lost money, noting
ERISA “ ‘requires prudence, not prescience’ ” (citation
omitted)); Quan, 623 F.3d at 881 (“Fiduciaries are not
expected to predict the future of the company stock’s
performance . . . .”).
The second would require insiders to engage in invest-
ment transactions on the basis of material nonpublic
information, which would violate federal securities
laws. Lanfear, 679 F.3d at 1282 (“Just as plan participants
have no right to insist that fiduciaries be corporate
insiders, they have no right to insist that fiduciaries
who are corporate insiders use inside information to
the advantage of the participants.”); Quan, 623 F.3d at 881
(the Moench presumption “gives fiduciaries a safe harbor
No. 11-2660 27
from failing to use insider information”); Kirschbaum,
526 F.3d at 256 (“[I]n some cases, requiring a fiduciary
to override the terms of a company stock purchase
plan could suggest the necessity of trading on insider
information. Such a course is prohibited by the secu-
rities laws.”).
The third would hold fiduciaries liable for failing to
outsmart a presumptively efficient market. That is also
not a sound basis for imposing liability. Summers, 453
F.3d at 408 (“A trustee is not imprudent to assume that
a major stock market . . . provides the best estimate of
the value of the stocks traded on it that is available to
him.”); see also Nelson v. Hodowal, 512 F.3d 347, 350
(7th Cir. 2008) (“Securities law assumes that markets for
widely-traded stock . . . are efficient and impound all
publicly available information.”), citing Basic Inc. v.
Levinson, 485 U.S. 224 (1988). It would not be reasonable
to impose any of these obligations on fiduciaries.
When we asked counsel for plaintiffs and counsel for
the Secretary of Labor for other grounds for imposing
liability, we received no specific answers. The plaintiffs’
theory expects the impossible from fiduciaries, at least as
long as we are dealing with an efficient market for a
publicly traded stock, in which we assume the current
market price incorporates all public information that is
material to the stock value. See generally Amgen Inc.
v. Connecticut Retirement Plans and Trust Funds, 133
S. Ct. 1184, 1192 (2013) (describing efficient securities
markets). Whenever a particular stock, a particular in-
dustry, or even an entire market experiences a
28 No. 11-2660
major change in prices, it will be possible to find a few
people who predicted it and invested accordingly, and
many others who did not. If the market is efficient, it
is hard to see how ERISA could find a fiduciary impru-
dent for valuing a stock at its current market price. See
Summers, 453 F.3d at 408, 412. Yet plaintiffs’ theory is
that the M&I fiduciaries were imprudent for failing to
foresee the drop in M&I’s stock price and for failing to
see that the slide would continue.
Although fiduciaries cannot reliably predict when or
how much stock will drop in the future, they can be
reasonably certain that some high-impact, improbable
events — including dramatic losses or gains in the stock
market — are likely. See generally Nassim Nicholas Taleb,
The Black Swan (2007). M&I Bank understood this
when the Plan was established. The Plan contemplated
the widest possible range of circumstances and directed
plan fiduciaries to offer the M&I Stock Fund under all
circumstances, “no matter how dire.” The Plan went a step
further in explaining the reasons for this instruction:
“Marshall & Ilsley Corporation believes that, should it
suffer reversals of fortune, the alignment of the interests
of Plan Participants and Marshall & Ilsley Corporation
may be the very thing which will enable Marshall &
Ilsley Corporation to again prosper.” Plan § 16.02(f).
Instead of ignoring the wide range of potential swings
the single employer stock fund could face, the Plan
treated the employer stock fund as what it was — just one
investment option among many, one that would give
priority to investing in one’s employer over investment
diversity (and therefore risk mitigation).
No. 11-2660 29
The second theory — that fiduciaries imposed exces-
sive risk upon participants — is equally problematic.
There is no doubt that it is highly risky for an individual
employee to invest heavily in the employer’s stock. See
Summers, 453 F.3d at 409-10; Lisa Meulbroek, Company
Stock in Pension Plans: How Costly Is It?, 48 J.L. & Econ.
443, 448 (2005) (risk of investment in a single firm is
double that in a diversified account); Shlomo Benartzi
et al., The Law and Economics of Company Stock in 401(k)
Plans, 50 J.L. & Econ. 45, 49-50 (2007) (risk to employee
of investment in single employer stock may be greater
than Meulbroek’s calculations because “it exposes them
to idiosyncratic risk as well as to the possibility of suf-
fering simultaneous reductions in both retirement
savings and wages”); see also Vickie L. Bajtelsmit &
Jack L. VanDerhei, Risk Aversion and Pension Invest-
ment Choices, in Positioning Pensions for the Twenty-First
Century 45, 66 (Michael S. Gordon, et al. eds., 1997) (ESOPs
are substantially riskier than diversified plans), citing
Michael Conte & Rama Jampani, Financial Returns
of ESOPs and Similar Plans, in Pensions, Savings, and
Capital Markets (Dep’t of Labor 1996). Remember, though,
that the M&I Plan gave employees freedom to make
their own investment choices from among many
different investment options. Those options were chosen
to give employees the ability to tailor an individual
portfolio to fit any individual’s tolerance for invest-
ment risk.
There is ample reason to worry that many employees
will not understand the riskiness of an employer stock
fund. See, e.g., Richard Thaler & Cass R. Sunstein, Nudge
30 No. 11-2660
128-30 (revised ed. 2009), citing Boston Research Group,
Enron Has Little Effect on 401(k) Participants’ View of Com-
pany Stock (2002) (survey revealed most employees did
not appreciate the risk of undiversified employer stock);
Benartzi et al., 50 J.L. & Econ. at 53-54 (past research
and authors’ research showed the same: “Only three of
10 respondents realize that company stock is riskier than
a diversified stock fund.”); Meulbroek, 48 J.L. & Econ. at
447-48 (summarizing research showing that employees
tend to underestimate the riskiness of company stock
and that their perception of risk “seems more related to
the firm’s past returns than to its stock volatility”).
But ERISA does not require fiduciaries of an EIAP to
act as personal investment advisers to plan participants,
nor could they do so. They do not have enough informa-
tion about an employee’s other assets, family circum-
stances, risk tolerance, and so on, to provide such indi-
vidual advice. Such a plan gives participants the control
by design, and it gives employees the responsibility
and freedom to choose how to invest their funds.
D. Applying the Moench Presumption of Prudence
We recognize that this logic points in the direction of
never recognizing challenges to ESOP fiduciaries’ deci-
sions to offer and to continue offering publicly traded
employer stock as one of several investment options in
an individually directed retirement or other savings
plan. We have not gone that far in prior cases, see
Howell, 633 F.3d at 568-69; Summers, 453 F.3d at 411-12;
Steinman, 352 F.3d at 1106, and we need not go that far
No. 11-2660 31
to decide this case. Nevertheless, plaintiffs challenging
an ESOP investment offering based on overvaluation —
even if they allege circumstances more extreme than
those alleged here — will still need to rebut this logic
and show a basis for liability that does not depend
on hindsight or a theory that plan fiduciaries should
have outsmarted an efficient market or used non-public
material information for the benefit of plan participants.
And plaintiffs challenging an ESOP investment option
under the excessive risk theory will need to show
extreme risks imposed upon participants by fiduciaries
that outweigh the flexibility of a plan that allows em-
ployees to select from among a variety of investment
options.
We need not explore in this case the outer bounds
of what more extreme circumstances might require an
ESOP fiduciary to violate plan terms and remove pub-
licly traded employer stock as an investment option.
We need not do so because the plaintiffs’ allegations
here do not come close to describing a circumstance
in which no reasonable fiduciary could believe that con-
tinuing to offer as one investment option a fund in-
vesting primarily in the employer’s stock would vio-
late ERISA. Given the clear direction of the Plan docu-
ments to offer the fund under any circumstances, “no
matter how dire,” we do not see how any of the plain-
tiffs’ allegations about M&I’s decline would have led
the fiduciaries to reasonably think that the adopters of
the Plan would have wanted them to remove the M&I
Stock Fund as an option under the circumstances
alleged here, nor did ERISA require the fiduciaries to
violate the terms of the Plan.
32 No. 11-2660
First, plaintiffs make no allegations sufficient to
indicate that M&I’s circumstances were either dire or
nearing collapse. The value of employees’ investments
in M&I dropped in accordance with the rest of the stock
market and not so drastically as to be considered dire
circumstances. Second, plaintiffs make no allegations
sufficient to indicate that, given all the relevant circum-
stances, the fiduciaries imposed excessive risk upon
the participants. The Plan permitted employees to
choose from among twenty-two options and allowed
them to change their investments at any time.
To explain the first point, the drop in stock price here
was not extraordinary, especially compared to the value
of similar banks’ stock prices and broader stock market
indices during the same period. From November 2006
to April 2010, M&I’s stock fell from $46.92 to $21.43
(adjusted to include the Metavante and FIS spin-offs), a
drop of 54 percent. As painful as that was, such a drop
in stock prices was not unusual for banks during that
period. An informal survey of other national and
regional banks’ stock prices from the same period
shows that M&I’s stock performance was consistent
with the performance of other banks at the time:
No. 11-2660 33
Starting Stock Ending Stock Percent
Bank Price Price Drop
November 10, 2006 April 21, 2010
M&I $ 46.92 $ 21.43 54%
Bank of America $ 46.85 $ 18.05 61%
Fifth-Third $ 34.15 $ 14.40 58%
Capital One $ 71.56 $ 44.18 38%
Twin Cities Federal $ 21.65 $ 15.61 28%
Source: Yahoo! Finance Stock Research Center, finance.yahoo.com
The drop in M&I’s stock price was also generally con-
sistent with the overall performance of the market at the
time, although M&I’s recovery was somewhat slower
and more modest than the rest of the market’s. M&I’s
stock fell through 2007 and 2008, hit its lowest point in
the first quarter of 2009, and then began to recover. Simi-
larly, the Standard & Poor’s 500 index dropped nearly
50 percent in the same period and, like M&I, hit its
lowest point in March 2009 and then began to recover.
See Yahoo! Finance Stock Research Center, Historical
Stock Prices, finance.yahoo.com. Thus, M&I’s stock was
not performing dramatically worse than other indi-
vidual stocks or the larger market itself. If at some time
during the downward slide the fiduciaries had re-
moved the M&I Stock Fund from the available options
in the Plan, the efficient market hypothesis tells us
that they would have had difficulty replacing it with a
stock or fund that was likely to perform much better.
The 54 percent drop in M&I’s stock is also not signifi-
cantly worse than drops in stock prices in cases where
34 No. 11-2660
we and other courts have found, as a matter of law,
no violation of the duty of prudence. In Summers, we
affirmed summary judgment for plan fiduciaries,
finding that they did not act imprudently by not
divesting from an ESOP despite a total price drop of
84 percent. At each point in the downward slide, the
market price was the best estimate of the stock’s
value, using the efficient market hypothesis for publicly
traded stocks. Summers, 453 F.3d at 408. In Howell, we
affirmed summary judgment for fiduciaries of an EIAP,
finding they did not act imprudently when they did not
remove the employer’s stock from the investment
options despite a 50 percent drop in the price of the com-
pany’s stock, which included a slight recovery after
dropping 23 percent in one day. That volatility was
within the “bounds described by plan documents,” and
collapse was not imminent. Howell, 633 F.3d at 568-69.
In Citigroup, the Second Circuit affirmed dismissal of a
prudence claim, finding that plan fiduciaries did not act
imprudently despite a 52 percent drop in stock price in one
year, noting that a 50 percent drop did not compel the
fiduciaries to change their course of action. Citigroup,
662 F.3d at 141. Similarly, the 54 percent drop here
does not amount to the kind of dire or extraordinary
circumstance that would have permitted the fiduciaries
to disregard the terms of the Plan, let alone required
them to do so.
Second, the flexibility of the M&I Plan meant that
continuing to offer the M&I Stock Fund did not impose
an undue risk on participants. At all times, participants
No. 11-2660 35
could choose among twenty-two funds and could
transfer money between funds at any time. If employees
wanted to avoid the risk of holding or buying more
M&I stock, it was easy for them to change investments
at any time. (The default choice for employee invest-
ments was a diversified “balanced growth” fund.
Supp. App. 5.) See Summers, 453 F.3d at 410 (noting
tension between employee interests and goal of ESOP
“is not acute if the participants in the ESOP have
adequate sources of income or wealth that are not cor-
related with the risk of [employer] stock, so that the
ESOP is not their primary financial asset”).
The availability of other options does not necessarily
excuse offering one imprudent investment. ERISA im-
poses a duty of prudence with regard to every offering,
see Howell, 633 F.3d at 567, and one can imagine wildly
speculative and unsuitable investments. When fiduci-
aries are considering specific alternatives, though, in-
cluding whether to remove the employer’s stock from
the available options, the availability of other options is
a relevant factor, especially where employees may face a
wide range of financial circumstances. As we explained
in Steinman and Summers, the analysis of a fiduciary’s
prudence depends on all the relevant circumstances.
See Steinman, 352 F.3d at 1106 (analyzing a variety of
relevant factors to determine whether “taken as a whole
the plaintiffs’ retirement assets are adequately diversi-
fied”); Summers, 453 F.3d at 411 (noting source of duty
for fiduciaries is excessive risk, and “[h]ow excessive
would depend in the first instance on the amount
and character of the employees’ other assets”).
36 No. 11-2660
Even if the availability of other options does not itself
always excuse a decision to continue offering employer
stock, their availability is relevant to how much risk a
fiduciary imposes on participants. Participants are not
hostage to a company’s declining stock if they can invest
in other funds. See Howell, 633 F.3d at 569 (“The very
existence of the three other investment options . . . or
eight other options . . . in the absence of any challenge
to any of those other funds, offers assurance that the
Plan was adequately diversified and no participant’s
retirement portfolio could be held hostage to Motorola’s
fortunes”). Mitigating risk further, participants here
were limited to investing only 30 percent of their total
contributions to the M&I Stock Fund, though they
could later move additional assets to M&I stock upon
request. This was not a situation in which fiduciaries
imposed excessive risk upon participants by not re-
moving the M&I Stock Fund.
We do not hold that it is impossible to allege a viable
imprudence claim against ESOP fiduciaries or that near
demise or excessive risk are the only circumstances
under which a fiduciary will be obligated to abandon
a plan’s directions, though for reasons set forth above, it
will be difficult for a plaintiff to meet that standard.
For now, suffice it to say that the facts alleged here
simply do not indicate that it could have been impru-
dent for the M&I fiduciaries to follow the Plan’s direc-
tions to keep M&I stock as an investment choice.
We also recognize, as the district court did, that the
strong language in this Plan’s documents requiring
No. 11-2660 37
that fiduciaries offer M&I stock, “no matter how dire”
the circumstances, may seem to insulate M&I from
claims of imprudence in any circumstances. Because the
circumstances here — a 54 percent drop in stock price —
would not permit plaintiffs to overcome the presump-
tion of prudence regardless of the strength of the Plan’s
direction to offer M&I stock, we do not rest our decision
on that language in light of the fact that ERISA’s duty
of prudence requires fiduciaries to follow plan docu-
ments only insofar as they are “consistent” with ERISA.
See 29 U.S.C. § 1104(a)(1)(D). We can leave that more
difficult question for another day when fiduciaries
faced more extreme circumstances.
On a final note, we recognize that our decision inter-
prets ERISA in a way that gives plan participants a
great deal of responsibility for their own investment
decisions when the plan allows them to make those
decisions. The law in general, including ERISA in this
instance, tends to assume that ESOPs operate in a
world with rational actors who benefit from free choice
and good information. See, e.g., 29 U.S.C. § 1104(c) (safe
harbor for fiduciaries where plan participants control
investment of assets); Pension Protection Act of 2006,
Pub. L. No. 109-280, § 901 (requiring defined contribu-
tion plans that invest in employer stock to give em-
ployees greater freedom to divest employer stock).
The empirical data tell a different story. In recent sur-
veys, over half of 401(k) participants believed incor-
rectly that their employer stock funds were less risky
than a diversified stock or money market fund. See
38 No. 11-2660
Richard Thaler & Cass R. Sunstein, Nudge 128 (revised ed.
2009), citing Boston Research Group, Enron Has Little
Effect on 401(k) Participants’ View of Company Stock (2002);
Shlomo Benartzi et al., The Law and Economics of Company
Stock in 401(k) Plans, 50 J.L. & Econ. 45, 53-54 (2007) (re-
viewing past research and conducting new research on
the point); see also Lisa Meulbroek, Company Stock in
Pension Plans: How Costly Is It?, 48 J.L. & Econ. 443, 447-48
(2005) (summarizing research showing that employees
tend to be naive and passive investors and do not under-
stand risk and need for diversity in 401(k) plan invest-
ments).
Because of such misunderstandings, employee-directed
retirement savings plans can pose substantial risks.
Employees may unwittingly take on more risk than is
suitable for their purposes. That is not the sort of claim
these plaintiffs have brought, though, and this kind of
litigation does not seem to be an effective solution to
the problem of poorly informed plan participants.
Perhaps that problem would be better solved through
rules such as limits on employee investments in
employer stock, or by encouraging or even requiring
plans to offer more education about investing. See, e.g.,
Benartzi, et al., 50 J.L. & Econ. at 65-69 (suggesting
possible policy corrections); Jeff Schwartz, Rethinking
401(k)s, 49 Harv. J. on Legis. 53 (2012) (proposing
dramatic restructuring of 401(k) plans). But in the
absence of other wrongful conduct not alleged here,
permitting employees to hold fiduciaries liable for
offering employer stock as one option in an individually-
directed retirement savings plans would risk converting
No. 11-2660 39
the fiduciaries into guarantors of employee retirement
savings. That is far beyond what can be expected of
fiduciaries of defined contribution plans.
III. Conclusion
The plaintiffs’ allegations do not state a viable claim
for breach of ERISA’s fiduciary duty of prudence
during the proposed class period. The M&I fiduciaries
did not violate ERISA by complying with the terms of
the Plan by continuing to offer the M&I Stock Fund as
an investment option during M&I’s 54 percent decline
in stock price, a decline that was not extraordinary
but was instead consistent with the rest of the stock
market. Offering the fund did not expose the partici-
pants to excessive risk, given the flexibility that the
Plan gave participants to direct their own investments
among a variety of investment options. The judgment
of the district court is A FFIRMED.
4-19-13