Appeals court overturns dismissal in IBM stock-drop case – Pensions & Investments


A federal appeals court in New York ruled against International Business Machines Crop., overturning a lower court dismissal of a lawsuit by IBM 401(k) plan participants, who alleged plan managers violated their fiduciary duties.

The three-judge appellate court panel reversed and remanded a September 2017 dismissal by a District Court judge regarding a company stock fund within the plan.

The District Court judge had rejected the complaint by participants that IBM’s fiduciaries should have protected their retirement accounts when the company’s stock fell after IBM’s efforts to sell its microelectronics unit in 2014.

The participants said plan fiduciaries could have taken actions to ameliorate stock-plan losses such as disclosing details about the value of the microelectronics unit or issuing “new investment guidelines that would temporarily freeze further investments in IBM stock,” according to court documents.

In 2014, Armonk, N.Y.-based IBM took a $2.4 billion write-down of the microelectronics unit assets and it paid $1.5 billion to GlobalFoundries to take the unit. However, U.S. District Judge William H. Pauley III ruled in September 2017 that the participants failed to show a prudent fiduciary could have taken actions without causing more harm than good.

This was the second time Mr. Pauley dismissed claims — the first was in September 2016 — in the case of Jander et al. vs. Retirement Plans Committee of IBM et al. The original complaint was filed in August 2015.

The appeals court, in a unanimous ruling on Dec. 10, said the plaintiffs “plausibly allege that the plan defendants had the requisite knowledge of (stock) overvaluation to raise fiduciary responsibilities consistent with the standard” of a landmark U.S. Supreme Court ruling on company stock funds in retirement plans.

“The allegations regarding the sale of the microelectronics business … tip the scales toward plausibility,” the court wrote.

The appeals court judges’ ruling referenced the Supreme Court case of Fifth Third Bancorp et al. vs. Dudenhoeffer et al., which established a series of guidelines for lower courts to use in assessing stock-drop complaints.

One guideline states courts must determine if proposed plaintiffs’ remedies in stock drop-cases would do “more harm than good” than what actions fiduciaries took.

The IBM 401(k) Plus Plan had assets of $53.92 billion as of Dec. 31, 2017, according to the latest 11-K filing with the Securities and Exchange Commission. The IBM Stock fund accounted for $1.28 billion, or 2.4% of total plan assets.

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