960 F.3d 190
5th Cir.2020Background
- In 2012 ConocoPhillips spun off Phillips 66; retirement assets (including large holdings in two ConocoPhillips single‑stock funds) were transferred into a newly established Phillips 66 defined‑contribution plan.
- After the spinoff the plan held about $2.9 billion in transferred assets, with ~$1.1 billion in ConocoPhillips single‑stock funds and ~$0.9 billion in Phillips 66 single‑stock funds (together ~58% of plan assets).
- Phillips 66 closed the ConocoPhillips Funds to new investments after the spinoff; participants could retain or sell their existing holdings at will.
- Plaintiffs sued the Plan Investment Committee under ERISA, alleging breaches of the duties to diversify and to act prudently by failing to divest or adequately monitor the ConocoPhillips Funds and by treating them as qualifying employer securities exempt from diversification duties.
- The district court dismissed for failure to state a claim; the Fifth Circuit affirmed, holding the funds were not employer securities after the spinoff, the diversification claim failed given the plan’s DC structure and available options, and the prudence claims were either foreclosed by Dudenhoeffer or inadequately pled.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Status of ConocoPhillips funds as "qualifying employer securities" | Funds retained employer‑security status after spinoff, so diversification/prudence limits didn’t apply | Funds were issued by ConocoPhillips, not Phillips 66; after spinoff they were not employer securities for the Phillips 66 plan | Funds were not qualifying employer securities after the spinoff; exemption does not apply |
| Duty to diversify under §1104(a)(1)(C) for a DC plan | Fiduciaries breached by allowing an excessive concentration of plan assets in ConocoPhillips funds | DC plan fiduciaries only must offer options enabling diversification; participants allocate assets | Diversification duty looks to the plan as a whole; claim fails because fiduciaries offered options and warned participants; they need not force diversification |
| Duty of prudence re: retaining single‑stock funds (market‑mispricing theory) | Fiduciaries should have divested because public information showed increased risk and market mispricing | Dudenhoeffer bars claims that fiduciaries should have recognized market mispricing from public information | Market‑mispricing theory foreclosed by Dudenhoeffer; publicly available info alone is insufficient |
| Duty of prudence re: single‑stock funds (undiversified risk and procedure) | Single‑stock funds are inherently imprudent; fiduciaries failed to follow a proper evaluation procedure | ERISA does not ban single‑stock options; fiduciaries complied with disclosure/warnings and closed funds to new investments; procedural‑only claims insufficient | No per se ban on single‑stock funds; fiduciaries met disclosure duties and procedural‑only allegations fail to state a claim |
Key Cases Cited
- Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409 (2014) (public information generally insufficient to show fiduciary should have detected market mispricing)
- Kopp v. Klein, 894 F.3d 214 (5th Cir. 2018) (procedural‑only breach‑of‑prudence claims fail absent underlying substantive breach)
- DiFelice v. U.S. Airways, Inc., 497 F.3d 410 (4th Cir. 2007) (single‑stock options carry significant risk and may often be imprudent)
- Tatum v. RJR Pension Inv. Comm., 761 F.3d 346 (4th Cir. 2014) (no per se rule against non‑employer single‑stock funds; prudence is fact specific)
- Langbecker v. Elec. Data Sys. Corp., 476 F.3d 299 (5th Cir. 2007) (fiduciaries must undertake a reasoned investigation appropriate to the plan and decision)
- Bussian v. RJR Nabisco, Inc., 223 F.3d 286 (5th Cir. 2000) (ERISA prudence standard and overlapping duties explained)