Supreme Court ESOP Decision a Disappointing Mish-Mash

The ESOP Association sent out the following release today.

For Immediate Release: June 25, 2014

For More Information: Amy Gwiazdowski, 202/293-2971, amy AT

Supreme Court ESOP Decision a Disappointing Mish-Mash

(Washington, DC) June 25, 2014: “Today’s Supreme Court decision that says Congress’s near 40 year history of promoting employee ownership does not protect fiduciaries of employee stock ownership plans, or ESOPs, from lawsuits triggered by company stock price declines, is a disappointing mish-mash,” said ESOP Association President, J. Michael Keeling.

President Keeling’s statement is in response to the Court’s decision in Fifth Third Bancorp v. Dudenhoeffer. Congress has sanctioned ESOPs since 1974, and since the Moench decision in the mid-1990s, and thus the so-called Moench presumption, that lower Federal courts have all upheld, created a presumption that the ESOP fiduciary should hold company stock unless the company was collapsing. It is this pro-ESOP position the Court overruled in today’s case. Part IV of the decision, relevant primarily to publicly-traded companies, sets forth standards for future lawsuits to be used by lower Federal Courts that strongly suggest that “dumping” company stock from the ESOP is not required when share price declines, and leaves a more muddied guideline for a publicly-traded company fiduciary acquiring more shares for the ESOP when the share price is declining. The Supreme Court gives no standard for the “extent” of decline that would perhaps require halting the acquisition of shares.

“So even though Part IV of the decision is not a flat out requirement that the fiduciary dump the company stock, or quit acquiring company stock for the ESOP, it is unclear guidance for fiduciaries of non-traded companies with ESOPs, which are 99% of the ESOP sponsors in the U.S., when the share value of the private company declines,” said Keeling.

In sum, how this opinion affects ESOP plan sponsors is a mish-mash: more guidance on when a fiduciary of an ESOP is not prudent when acquiring stock for the ESOP, and almost a clear statement that dumping the stock on the market is not prudent, while leaving fiduciaries of non-traded companies with ESOPs, which are nearly all the ESOPs in the U.S., without guidance. It will probably result in more lawsuits.


The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – and blog –

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