## Facts

- Fifth Third Bancorp sponsored a defined-contribution retirement plan offering multiple investment options, including an ESOP invested primarily in Fifth Third stock.
- Plan participants alleged Fifth Third shifted toward subprime lending, increasing risk while corporate officers made misleading statements and inadequate disclosures that kept the stock price artificially high.
- Participants claimed ESOP fiduciaries (who were also corporate officers) knew or should have known—based on public and inside information—that the stock was overpriced and excessively risky.
- Plaintiffs alleged prudent fiduciaries would have stopped buying or holding employer stock, sold plan holdings, or disclosed negative inside information to correct the market price.
- After the stock price fell sharply during the 2007–2008 financial crisis, plan participants alleged significant losses to their retirement accounts.
- Plaintiffs sued under ERISA for breach of the fiduciary duty of prudence (and related fiduciary duties).
- The district court dismissed under Rule 12(b)(6), applying a judicially created “presumption of prudence” for ESOP fiduciaries; the Sixth Circuit reversed, holding the presumption did not apply at the pleading stage.

## Issues

1. Whether ESOP fiduciaries are entitled to a special “presumption of prudence” when challenged under ERISA for buying or holding employer stock.
2. What a plaintiff must plead to plausibly state an ERISA prudence claim against ESOP fiduciaries based on (a) public information and (b) inside information, considering market pricing and securities-law constraints.

## Decision

- The Supreme Court vacated the Sixth Circuit’s judgment and remanded.
- The Court held ESOP fiduciaries are not entitled to any special presumption of prudence; they are subject to ERISA’s ordinary duty of prudence, except they need not diversify the ESOP’s holdings.
- For claims based on public information, the Court held it is generally implausible to allege a fiduciary should have concluded from public information alone that the market price was incorrect, absent “special circumstances” undermining market reliability.
- For claims based on inside information, the Court required plaintiffs to plausibly allege a specific alternative action the fiduciary could have taken that (a) would have been consistent with securities laws and (b) a prudent fiduciary could not have viewed as more likely to harm the plan than help it.

## Legal Principles

- ERISA imposes the same duty of prudence on ESOP fiduciaries as on other ERISA fiduciaries, except that ESOP fiduciaries are exempt from diversification and from prudence only to the extent prudence would require diversification.
- Courts may not create a special prudence presumption for ESOP fiduciaries absent statutory support.
- Public-information stock-drop claims typically fail without allegations of “special circumstances” showing that the market price of publicly traded stock did not reflect fair value.
- Inside-information stock-drop claims must plead a lawful, feasible alternative action and facts showing a prudent fiduciary could not have concluded the alternative would do more harm than good, with careful attention to potential conflicts with insider-trading and corporate-disclosure rules.
- ERISA’s duty of prudence does not require fiduciaries to take actions that would violate federal securities laws.

## Conclusion

The Court rejected a special “presumption of prudence” for ESOP fiduciaries but imposed demanding, context-specific pleading requirements for ERISA stock-drop suits, especially where claims depend on market-pricing assumptions or on proposed actions constrained by securities law.


Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409 (2014)