Varga v. General Electric Company, et al., No. 20-1144-CV, __F.App’x__, 2021 WL 391602 (2d Cir. Feb. 4, 2021) (Kearse, Pooler, Lynch, Circuit Judges).
The Second Circuit considered an appeal brought by Varga, a participant in GE’s 401(k) retirement plan, who alleged that the defendants breached their fiduciary duty of prudence which negatively impacted the value of the GE Stock Fund, one of the 401(k) options in which Varga invested. In January 2018, GE announced significant liabilities of its two insurance subsidiaries that were under reserved by approximately $15 billion, and to which GE would need to contribute several billion dollars. Varga alleged that GE’s reinsurance subsidiaries did not provide for adequate reserves and the defendants should have known about this several years earlier. She further alleged that GE failed to take corrective action to protect GE Stock Fund participants by either closing the Fund to future participants or publicly disclosing the underfunding at the time it knew about it.
Citing to Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409 (2014), the court explained that “[t]o plausibly state a claim that an ESOP fiduciary possessing inside information about the company breached ERISA’s duty of prudence, plaintiffs must allege ‘that a prudent fiduciary in the defendant’s position could not have concluded that [the proposed alternative action] would do more harm than good to the fund by causing a drop in the stock price and a concomitant drop in the value of the stock already held by the fund.’” The district court determined that Varga failed to adequately plead alternative actions that the fiduciaries “could not have concluded … would do more harm than good.”
Varga argued that prolonged failure to disclose “would only increase the reputational damages once the issue was inevitably disclosed,” but the district court “correctly observed” that Varga fails to allege a major triggering event that would have made GE’s eventual disclosure inevitable. “Varga’s suggestion that the fiduciaries could have closed the fund in 2009 is similarly conclusory, unsupported by any factual matter suggesting that the fiduciaries could not have concluded that such an action would do more harm than good.” Because Varga did not adequately plead alternative actions that the fiduciaries could have taken, the Second Circuit did not address Varga’s arguments regarding whether it adequately plead the fiduciaries knew or should have known about the shortfall in reserves. The Second Circuit affirmed the order of the district court.
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