PLANADVISER - September/October 2022 - 8

compliance news //
... minutes are not a transcript of
meetings and therefore not an
indication that Goldman Sachs paid
little attention to the funds. Detailed
minutes are likewise not required by
ERISA, and thus a lack of them does
not constitute a breach.
Sachs privileged its funds over others,
the conflict did not represent a breach
to its duty of loyalty.
Falberg also had alleged that the
Goldman Sachs plan does not employ
an investment policy statement and
that committee meeting minutes
made only general mention of
the
investments.
Goldman Sachs countered that
ERISA does not require plans to have
an IPS and that having one is merely
a best practice. The absence of an IPS
does not necessarily mean that a firm
is not monitoring investment options.
Secondly, minutes are not a transcript
of meetings and therefore not
an indication that Goldman Sachs paid
little attention to the funds. Detailed
minutes are likewise not required by
ERISA, and thus a lack of them does
not constitute a breach.
The judge sided with Goldman
Sachs on both arguments and noted
that an expert witness called by
Falberg had conceded that an IPS is not
required by ERISA. The judge found
that Goldman Sachs did not breach
any fiduciary duty and closed the case.
3rd Circuit Backs J&J
In Stock-Drop Appeal
The 3rd U.S. Circuit Court of Appeals
has issued a new ruling in an Employee
Retirement Income Security Act
stock-drop lawsuit targeting Johnson
& Johnson, thereby affirming the
dismissal of the lawsuit as ordered by
a district court in May 2020.
J&J offers an employee stock ownership
plan as an investment option
within its retirement savings program
for employees. The ESOP invests solely
in J&J stock, which declined in price
following news reports of accusations
that J&J had concealed that its
baby powder was contaminated with
asbestos. J&J has denied the allegation
and any attempt at a cover-up,
but the company has been embroiled
in various lawsuits and investigations
into the matter.
The
plaintiffs, who
are
J&J
employees who participated in the
ESOP, alleged that the plan's administrators,
senior officers of J&J, violated
their
fiduciary duty of prudence by
failing to protect the ESOP's beneficiaries
from a stock-price drop. According
to the plaintiffs, those fiduciaries, being
" corporate-insider fiduciaries, " should
have seen the price drop coming, due
to the baby powder controversy.
The U.S. District Court for the
District of New Jersey granted J&J's
motion to dismiss the litigation, based
on key precedent established in the
Supreme Court decision in Fifth Third
Bancorp v. Dudenhoeffer.
The new appellate ruling agrees,
noting that, in Dudenhoeffer, the
Supreme Court wrote, to bring such
a claim, the plaintiff must plausibly
allege " an alternative action that the
defendant could have taken that would
have been consistent with the securities
laws, " and, further, " that a prudent
fiduciary in the same circumstances
would not have viewed [the proposed
alternative action] as more likely to
harm the fund than to help it. "
In this case, the plaintiffs proposed
that the defendants could have used
their corporate powers to make public
disclosures that would have corrected
J&J's
artificially high
stock
price
earlier rather than later. Second, they
proposed that the fiduciaries could
have stopped investing in J&J stock and
held all ESOP contributions as cash.
" The District Court rejected those
alternative actions as failing the
Dudenhoeffer test, and we agree, " the
appellate ruling states. " A reasonable
fiduciary in the defendants' circumstances
could readily view corrective
disclosures or cash holdings as being
likely to do more harm than good to
the ESOP, particularly given the uncertainty
about J&J's future liabilities and
the future movement of its stock price.
We will therefore affirm the dismissal
of the plaintiffs' complaint. "
In explaining its decision, the
appeals court pointed out that, under
Dudenhoeffer, a stock-drop plaintiff
must do more than allege a general
economic theory for why earlier disclosure
would have been preferable.
More Time to Comment
On the QPAM Exemption
Amendment
The Employee Benefits Security Administration
of the Department of Labor
announced it will hold an online public
hearing on its proposed amendment to
its Class Prohibited Transaction Exemption
84-14-aka qualified professional
asset manager exemption, or QPAM.
EBSA is also extending the public
comment period for the proposed
amendment through October 11; a
supplemental comment period will
follow the hearing, which starts
November 17. The DOL and EBSA
8 | planadviser.com September-October 2022
http://www.planadviser.com
PLANADVISER - September/October 2022

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