Retirees, who have pension plans invested in company stock only to see shares plummet, have been given a gift by the 9th U.S. Circuit Court of Appeals. In a significant defeat for companies in stock-drop disputes over employer pension plans, the court refused Wednesday to order a full court rehearing and let stand revival of a suit by Amgen, Inc. pensioners.
Back in June a three-judge panel rolled back its own 2010 precedent and broke with the trend of other circuits by refusal to presume prudence on the part of pension managers who continue to invest in company stock even after that stock drops.
If company stock purchases are optional in the pension plan, the 9th Circuit panel said then the defense of a “presumption of prudence” does not apply. That presumption represents a critical defense to many companies facing angry retirees after company stock drops. It arises under the Employee Retirement Income Security Act, ERISA.
Back in 2010, the 9th Circuit had agreed with the 2nd, 3rd, 5th and 6th Circuits by allowing a “presumption of prudence” in certain investment decisions that include purchase of a the company’s own stock.
Not any more.
The panel held that Congress wanted to protect retirement plan investments of employees and therefore specified that a “prudent man” standard of care to diversify investments should be used.
The panel in Amgen said that the 2010 decision was only intended to allow the presumption of prudence when a company fiduciary was required to purchase company stock.
In the Amgen plan, company stock purchases were optional. This means the retirees may have their day in court to challenge the pension funds’ purchase of Amgen stock between 2005, when shares reached a high of $87 a share, until 2007 when it dropped to $28.83, in a dispute over off-label marketing of Aranesp and Epogen, blood clotting drugs also used to treat anemia caused by chemotherapy.
But in 2007, the Food and Drug Administration issued a “black box” warning that off-label use of the two drugs could increase the risk of death, blood clots, strokes and heart attacks.
The pension investment dispute now goes back to federal court in Los Angeles, unless it is appealed to the U.S. Supreme Court.
But whatever the outcome of this case, expect company pension plans to consider making stock company purchase mandatory in future pension plans.
There were no votes on the full court to rehear the case en banc.
The original three-judge panel included Judges Jerome Farris, William Fletcher and visiting Judge Edward Korman, of the Eastern District of New York.
Case: Harris v. Amgen, Inc. No. 10-56014
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