Over the last two decades, the federal courts have been gradually making life harder for ERISA plaintiffs by concluding that the guardians of employee retirement plans are presumed to be acting prudently when selecting investments. The U.S. Court of Appeals for the Third Circuit first codified the presumption in Moench v. Robertson, 62 F. 3d 553, in 1995; since then six federal circuits have adopted the standard, including most recently the Second Circuit in a ruling against Citigroup last October. Gray v. Citigroup (In re. Citigroup ERISA Litig.), 662 F.3d 128.
The Moench presumption has gotten a workout in the wake of the subprime meltdown, since the financial institutions at the center of the crisis pretty much all ran retirement programs that invested heavily in company stock. The standard has been used to great effect by lawyers for UBS AG and Bear Stearns, among others, to knock out employee retirement claims triggered by credit crisis-related stock drops. But it has important limits, as Southern District Judge Paul Crotty in Manhattan reminded ERISA lawyers Oct. 22 in a case against the Federal National Mortgage Association, a.k.a. Fannie Mae. U.S. Securities and Exchange Commission v. Mudd, 11 civ. 09202.
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