Court Takes Expansive View of ERISA Presumption That ESOPs Should Invest Primarily in Company Stock

The recent spate of "stock drop" cases has focused mostly on 401(k) plans, but some of the companies had ESOPs as well. Courts have generally adopted the Moench v. Robertson doctrine that investments in company stock can be presumed to be prudent unless the company is in serious difficulty. In Pedraza v. Coca-Cola Company, No 1:05-cv-1256-ODE (N.D. Ga. Sept. 29, 2006), a case involving a combination ESOP-401(k) plan, a district court strongly agreed with this standard. Coca-Cola stock dropped about 33% from the late 1990s until 2005, but the court ruled that the fiduciaries for the ESOP portion of the plan would have only had to remove and/or stop buying shares "in the case of a company on the brink of collapse." The court also dismissed the claim that the 401(k) portion of the plan should not have offered company stock as one investment option, saying that the plan documents required it.