Supreme Court to Investigate IBM Stock Drop’s Influence on Corporate 401(k) Plan

Investigation could have wide-ranging effects on corporate pension plans.

Managers overseeing investments for a retirement fund concerning IBM employees are due to be investigated by the nation’s highest court, after the US Chamber of Commerce implored the justices to decide whether the managers investing in the company’s stock failed to disclose whether it was overvalued.

The plaintiffs in the case stated that the managers of IBM’s retirement fund—the Retirement Plans Committee of IBM—were either cognizant or had sufficient intelligence to determine that the company’s equity was overvalued when allocating employees’ retirement funds towards it.

When IBM sold its computer chip business to GlobalFoundries, the company’s stock price plunged by about 7%, prompting a lawsuit from plan members. That suit was dropped but later revived and allowed to proceed as a class action lawsuit by the US Court of Appeals for the Second Circuit. IBM then countered by asking the Supreme Court to review the lower court’s decision.

The IBM committee argued that such a case “reopens the door to lawyer-driven class actions that spring up after every stock drop.” In the past, courts have rejected similar class action lawsuits, including the retirement plans of Whole Foods, JP Morgan, BP, Target, Radioshack, Citigroup, and others.

The IBM committee launched a petition that garnered the support from the US Chamber of Commerce, which argued that the case’s arguments discourage plan sponsors from offering employee stock ownership plans in the future.

IBM referred to a similar case–Fifth Third Bancorp vs. Dudenhoeffer—where the Supreme Court ruled that in order to prove a fiduciary breached its responsibilities, the case must allege that there was another strategy the defendant could have legally pursued, and that a fiduciary wouldn’t have thought that halting a transaction would do more harm than good.

“There is simply no denying that allegations deemed sufficient here would not suffice in the fifth and sixth circuits,” IBM said in a prepared statement.

The Supreme Court will tend to the case in its next term, beginning in October.

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