In Bunch v. W.R. Grace & Co. (2009 CA1) 2009 WL 211054 the plan participants sued the plan trustees who sold the W.R. Grace stock below the market price. The trustees' defense was that they had hired an independent appraiser (Duff & Phelps) and an independent law firm to represent them in making an analysis of the stock's value due to special circumstances then prevailing: W.R. Grace had filed a voluntary petition for chapter 11 bankruptcy due to industry-wide asbestos-related personal injury suits.
The independent appraiser determined that the dangers from the asbestos litigation were not fully reflected in the stock's market price. Therefore, the plan fiduciaries sold the stock for less than the market price.Later the litigation's danger proved to be less serious than the appraiser had feared, and the sales price was less than could have been realized.
The standard applied to the plan trustees was the same used for state law trustees, e.g., of a children's trust: the trustees are able to make mistakes as long as they make their decisions in a reasonable manner. The participants are not entitled to the benefit of 100% hindsight. Also, the special rule for participant stock in retirement plans—the presumption favoring retention when the market has dropped, which is a shield for a prudent fiduciary—cannot be turned into a sword by the participants.
This case—involving a 2004 fact situation—is an interesting example of what might occur in the many lawsuits now being filed due to the dramatic drop in stock prices occuring in the current market crash. Trustees need not make perfect calls: they just need to act properly.