Opinion
Cause No. IP 02-477-C H/K.
February 13, 2003
ENTRY ON DEFENDANTS' MOTION TO DISMISS
Plaintiffs are participants in or beneficiaries of the Employees' Thrift Plan of Indianapolis Power and Light Company ("the Thrift Plan"). Plaintiffs allege that defendants IPALCO Enterprises, Inc. ("IPALCO") and several company officials who served as the Employees' Committee for Employees' Thrift Plan of Indianapolis Power Light Company ("the Committee") breached fiduciary duties under Section 404 of the Employee Retirement Income and Security Act ("ERISA"), 29 U.S.C. § 1104. Defendants have moved to dismiss the amended complaint with prejudice for failure to state a claim upon which relief can be granted. Plaintiffs seek certification of a plaintiff class. The class issue has been postponed until defendants' motion to dismiss is resolved. As explained below, defendants' motion is denied.
Background
IPALCO was a holding company whose principal subsidiary supplied electricity to retail customers in Indianapolis, Indiana. Plaintiffs' claims stem from the acquisition of IPALCO by the AES Corporation in a stock-for-stock transaction. On July 15, 2000, the IPALCO board of directors executed a share exchange agreement that called for each share of IPALCO common stock to be exchanged for $25.00 worth of AES common stock, calculated based on the value of AES stock on the closing date, which was March 27, 2001.
Plaintiffs allege that approximately 77 percent of the assets of the Thrift Plan were invested in IPALCO stock, which upon closing was exchanged for AES stock. According to plaintiffs, IPALCO was a sound company with a long record of paying dividends and maintaining a relatively stable stock value. Plaintiffs allege that AES, by contrast, was a much larger but highly leveraged company that did not pay dividends and whose stock price was highly volatile. According to plaintiffs, AES stock was not a suitable investment for the Thrift Plan after the closing.
In the week before the March 27, 2001 closing, AES stock traded in a range of $43.20 to $48.01 per share. Over the next three months, AES shares reached a price as high as $52.00 per share, and as late as July 10, 2001, AES shares closed at $43.40 per share. AES stock then began a long and steep decline. By September 25, 2001, the stock had slid to $24.25 per share. The next day, September 26th, it dropped almost 50 percent in value, closing at $12.25 per share. By March 2002, AES stock traded in a range of approximately $5.00 to $9.00 per share, reflecting a loss of 80 to 90 percent of the value it had at the time of the closing in March 2001. Def. Br. Ex. C.
In deciding a motion to dismiss, a court may take judicial notice of well-publicized stock prices. Ganino v. Citizens Utilities Co., 228 F.3d 154, 166 n. 8 (2d Cir. 2000); Grimes v. Navigant Consulting, Inc., 185 F. Supp.2d 906, 913 (N.D.Ill. 2002) (collecting cases and granting motion to dismiss based on stock prices).
Plaintiffs filed this action on March 29, 2002, alleging that IPALCO and the Committee members had breached their fiduciary duties under ERISA. The original complaint alleged claims based on investment of the assets of the IPALCO Pension Plan in AES stock. Plaintiffs have dropped those allegations in their amended complaint, apparently because the IPALCO Pension Plan did not own IPALCO or AES stock.
In the amended complaint directed to the Thrift Plan, plaintiffs have highlighted the profits secured by the individual defendants as a result of the AES transaction, and have contrasted those results with the losses of participants in the Thrift Plan. The individual defendants who were members of the Committee include the CEO of IPALCO and other senior officers of the company. Plaintiffs contend that those benefits posed conflicts of interest for the individual defendants regarding the continued investment in IPALCO stock and the later conversion of assets from IPALCO stock to AES stock.
Both sides agree that the Thrift Plan is an eligible "individual account plan" within the meaning of 29 U.S.C. § 1002(34), so that the diversification requirements of 29 U.S.C. § 1104(a) and § 1107(a) were not violated by heavy ownership of IPALCO stock. See Pl. Br. at 9 n. 4. The parties also agree, at least for purposes of defendants' motion to dismiss, that the plan does not qualify for the "safe harbor" for fiduciaries under 29 U.S.C. § 1104(c), which provides that a fiduciary shall not be liable for any loss or breach that results from a plan participant's or beneficiary's exercise of control over the assets in an individual account.
The safe harbor provisions are available only to plans that satisfy a number of detailed regulatory requirements. See 29 C.F.R. § 2550.404c-1.
The amended complaint assert two counts based on the management of the separate Thrift Plan. Count One addresses the plaintiffs' individual accounts, which were invested among eight different investment vehicles according to each plan participant's individual instructions. The Thrift Plan allowed participants to contribute up to 21 percent of their eligible compensation to the plan. Participants were entitled to shift their voluntary contributions among the different investment vehicles on any business day. At no time were plaintiffs' investments of their own contributions locked in or frozen in IPALCO or AES stock.
Plaintiffs assert in Count One that the defendants breached their fiduciary duties of loyalty and prudence by encouraging and/or allowing the participants to keep their investments in AES stock and to make new purchases of AES stock after the closing. Plaintiffs also allege that defendants breached their fiduciary duties by failing to provide sufficient information to participants about the conversion of the IPALCO stock to AES stock.
Count Two addresses IPALCO's matching contributions to the accounts. Under the Thrift Plan, IPALCO matched 100 percent of an employee's contributions, up to a maximum of 4 percent of the employee's compensation. The Thrift Plan provided that these employer matching contributions were to be invested only in IPALCO stock. Plan §§ 304.20, 305.30. In Count Two, plaintiffs assert that defendants breached their fiduciary duties by keeping the employer's contribution assets invested in IPALCO and then AES stock, without allowing participants to direct the sale of the stock so as to redirect those investments to some other vehicle.
Dismissal Standard Under Rule 12(b)(6)
By moving to dismiss under Rule 12(b)(6), defendants have invited the court to consider the case under a legal standard that is one of the most generous to plaintiffs under the law. In deciding a motion to dismiss under Rule 12(b)(6), the court reviews all facts alleged in the complaint and any inferences reasonably drawn from the alleged facts in the light most favorable to the plaintiff. E.g., Gould v. Artisoft, Inc., 1 F.3d 544, 548 (7th Cir. 1993) (reversing dismissal). Dismissal is warranted only if the plaintiffs can prove no set of facts consistent with the complaint that would entitle them to relief. Hishon v. King Spalding, 467 U.S. 69, 73 (1984); Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Detailed allegations of facts, legal theories, or their elements are not required in the complaint. Under Rule 8(a) of the Federal Rules of Civil Procedure, all that is needed is "a short and plain statement of the claim showing that the pleader is entitled to relief." "A complaint does not fail to state a claim merely because it does not set forth a complete and convincing picture of the alleged wrongdoing." Bennett v. Schmidt, 153 F.3d 516, 518 (7th Cir. 1998) (reversing dismissal of employment discrimination complaint) (citations omitted).
Plaintiffs did not attach the Thrift Plan as an exhibit to the amended complaint, but defendants submitted a copy (including amendments) along with their brief supporting dismissal. Because the Thrift Plan is both mentioned in the amended complaint and central to the claims asserted, the court may consider the plan documents as part of the amended complaint for purposes of deciding the motion to dismiss. See, e.g., Menominee Indian Tribe v. Thompson, 161 F.3d 449, 456 (7th Cir. 1998) (in deciding motion to dismiss, district court could properly rely on documents referred to in complaint but not attached to complaint); Wright v. Associated Ins. Co., 29 F.3d 1244, 1248 (7th Cir. 1994) (same).
Defendants have argued in their reply brief that plaintiffs have improperly tried to "amend" their amended complaint through arguments in their brief. The plaintiffs' elaborations in their brief merely demonstrate, however, just how generous the standard under Rule 12(b)(6) can be. The Seventh Circuit has described as "the well-established law of this circuit" a rule that even the appellate court "will consider new factual allegations raised for the first time on appeal provided they are consistent with the complaint." Chavez v. Illinois State Police, 251 F.3d 612, 650 (7th Cir. 2001), quoting Veazey v. Communications Cable of Chicago, Inc., 194 F.3d 850, 861 (7th Cir. 1999), quoting in turn Highsmith v. Chrysler Credit Corp., 18 F.3d 434, 439 (7th Cir. 1994). Thus, a brief in the district court that elaborates upon a complaint without contradicting it is a fair means of responding to a motion under Rule 12(b)(6).
Discussion
I. Count One — Participants' Investment Decisions
In Count One of the Amended Complaint, plaintiffs allege that the defendants breached their fiduciary duties under ERISA with respect to the plaintiffs' self-directed investments. Because the individual plan participants could make their own investment decisions, this claim is in essence a "wrongful promotion" claim. Plaintiffs allege that defendants violated ERISA by offering and promoting IPALCO stock as an investment option after the AES merger agreement, by directing conversion of IPALCO stock to AES stock, and by failing to disclose to plan participants and beneficiaries important information about the AES transaction.
Plaintiffs identified several statements to support the wrongful promotion claim. They allege that the defendants represented that the AES transaction was "a positive development for IPALCO's employees." Am. Cplt. ¶ 4. They allege that at a special shareholder meeting on October 20, 2000, IPALCO's CEO, defendant John Hodowal, announced that the AES acquisition "offered the best package for IPALCO shareholders and employees." Am. Cplt. ¶¶ 39, 48.
Defendants argue in several ways that these statements cannot amount to wrongful promotion because there is no allegation that defendants made the statements in any fiduciary capacity. The statements, defendants contend, were made in their capacities as managers of IPALCO rather than in their fiduciary capacities as members of the Committee.
The argument is not persuasive, at least under the generous standards that apply to a complaint when a defendant moves to dismiss under Rule 12(b)(6). Plaintiffs allege, for example, that defendant Hodowal said at the special shareholder meeting that the IPALCO board of directors served "as fiduciaries for all our constituents, including our shareholders and employees." Am. Cplt. ¶ 39. Also, persons in defendants' positions can speak or act in more than one legal capacity at a time for these purposes. Varity Corp. v. Howe, 516 U.S. 489, 502-05 (1996). Determining such "capacity" questions is a fact-specific inquiry. See id. (affirming factual findings that defendants acted at least in part in fiduciary capacities). The question of fiduciary capacity for such statements cannot be resolved as a matter of law on the pleadings.
Defendants also argue that Count One fails to satisfy Rule 9(b) of the Federal Rules of Civil Procedure, which requires that the circumstances of fraud be "stated with particularity." Defendants have not shown, however, that Rule 9(b) even applies to this claim of breach of fiduciary duties under ERISA. They have cited only Chicago District Council of Carpenters Welfare Fund v. Angulo, 169 F. Supp.2d 880, 885 (N.D.Ill. 2001), but that case is easily distinguishable from this one. The complaint in Chicago District Council attempted to allege a classic case of fraud. The employee benefit plan was the plaintiff and alleged that the defendants had falsely claimed that one defendant was a covered employee, had falsely claimed that a woman was his wife, and had submitted fraudulent claims for benefits. The "wrongful promotion" claim asserted in this case does not necessarily sound in fraud. It concerns instead alleged breaches of duties of loyalty and prudence, as well as alleged failures to disclose information to plan participants and beneficiaries. Such allegations are not subject to Rule 9(b). See Thornton v. Evans, 692 F.2d 1064, 1082-83 (7th Cir. 1982) (reversing dismissal of ERISA claim where district court had erroneously applied standards of Rule 9(b)); see also Concha v. London, 62 F.3d 1493, 1502 (9th Cir. 1995) (reversing dismissal of complaint and holding that Rule 9(b) did not apply to alleged breach of fiduciary duties under ERISA).
Defendants argue that the Thrift Plan did not authorize them to exercise any discretion regarding plan participants' investment decisions. That appears to be true in terms of executing those participants' decisions, but the plaintiffs pursue a different theory. They contend that the defendants took upon themselves a fiduciary responsibility by making statements that amounted to advice about plaintiffs' investments. This theory presents a relatively new type of ERISA claim. See, e.g., In re Unisys Savings Plan Litigation, 74 F.3d 420, 443-46 (3d Cir. 1996) (reversing summary judgment for individual account plan and its fiduciaries). The theory presents the troubling prospect of discouraging non-404(c) plans from giving participants any meaningful information or advice about how to make their investment decisions. At this point, however, given the developing law in cases of this type, it is at least possible that plaintiffs could prevail under some set of facts consistent with the allegations in their amended complaint. Defendants are not entitled to dismissal of Count One.
Unlike the defendants in Unisys Savings Plan, defendants in this case have not tried to show that the Thrift Plan satisfies the "safe harbor" criteria in 29 U.S.C. § 1104(c)(1)(B), which protect fiduciaries from liability for "any loss, or by reason of any breach, which results from such participant's or beneficiary's exercise of control" over assets in an individual account plan. See generally 29 C.F.R. § 2550.404c-1 (detailed regulations on qualification requirements for § 404(c) safe harbor).
II. Count Two — Employer's Matching Contributions
Defendants' strongest argument regarding Count Two and the employer contributions is simple: the plan sponsor was entitled to and did establish as a term of the Thrift Plan that employer contributions would be invested in IPALCO stock and only in IPALCO stock, and the term of the plan was later modified to replace IPALCO stock with AES stock. The Thrift Plan did not give the Committee the power to modify that term or to deviate from its instructions. By keeping the employer contributions invested in IPALCO stock, which then became AES stock, the Committee simply followed the mandatory and lawful term of the Thrift Plan document. In other words, the defendants contend, the requirement that employer contributions be invested in the employer's stock was simply a feature of plan design, so that the defendants could not have had any fiduciary duty to modify or deviate from that term of the plan.
ERISA allows an employer who establishes a benefit plan to decide the benefits that will be provided and to impose limits on those benefits. Just as the settlor of a trust is entitled to choose the terms of the trust, and may do so without undertaking any fiduciary duties to trust beneficiaries, so an employer may choose to provide benefits in a certain way, subject only to broad limits imposed by ERISA. See Akers v. Palmer, 71 F.3d 226, 231 (6th Cir. 1995) (explaining this aspect of ERISA in terms of trust law). As the plan sponsor, IPALCO was under no obligation to provide any match at all for employee contributions. The original requirement that the employer matching contributions be invested only in IPALCO stock was simply a design feature of the plan that was left to the sponsoring employer's discretion. See, e.g., Akers v. Palmer, 71 F.3d at 231 (affirming summary judgment; employer did not violate ERISA fiduciary duties by purchasing all shares of stock in company at less than market value, and then funding benefit plan with shares of stock valued at market value, or by deciding to terminate plan and sell stock at market value); see also King v. National Human Resource Committee, Inc., 218 F.3d 719, 723 (7th Cir. 2000) (affirming summary judgment; employer did not act as fiduciary when setting up benefit plan; defined functions of fiduciary do not include plan design, amendment, or termination); Ames v. American National Can Co., 170 F.3d 751, 757 (7th Cir. 1999) (affirming summary judgment; employer did not act as fiduciary when making design changes to benefit plan in connection with transfer of control of business).
Plaintiffs offer two principal responses. First, they contend that the terms of the Thrift Plan did not actually require the Committee to invest the matching contributions in employer stock, but instead gave the Committee sufficient power and discretion to have changed the investment plan for the employer matching contributions. Second, plaintiffs contend that ERISA sometimes requires a fiduciary to violate the explicit terms of a plan document where strict adherence to the terms of the plan would result in a breach of fiduciary duty.
The first argument is not persuasive. The Thrift Plan established as "available investment options" Funds A through H. Plan § 305.10. The Thrift Plan expressly provided: "Employer Allocations for Participants shall be Designated Fund B Contributions and, thus, invested entirely in Fund B." Plan § 305.30. Fund B consisted of "Common Stock," which was defined as IPALCO stock. Plan § 301.170. The Plan further provides that "Designated Fund B Contributions" are "required to be held in Fund B at all times until distribution." Plan § 301.320.
Plaintiffs rely on the following provision in the Thrift Plan: "Without the need of formal amendment and subject to any rules and conditions set forth in the Thrift Plan, the Committee may modify the available investment Funds." Pl. Br. at 27, citing Plan § 305.10. The very next sentence, however, provides: "Notwithstanding anything contained in this Subsection to the contrary, the Funds shall be subject to the other special rules provided in Subsections 305.30 and 305.40." In turn, Section 305.30 contains the directive: "Employer Allocations for Participants shall be Designated Fund B Contributions and, thus, invested entirely in Fund B." Section 305.40(a)(I) provides: "Designated Fund B Contributions may not be shifted from Fund B."
This language appears in the "First Amendment to the Employees' Thrift Plan of Indianapolis Power Light Company "as last amended and restated effective November 1, 1997," which is a four-page document dated September 1, 1997.
On January 16, 2001, IPALCO amended the Thrift Plan so as to transform Fund B from IPALCO stock into AES stock upon consummation of the planned share exchange. The amendment amended the definition of "Common Stock" in Section 301.170 of the Thrift Plan to read: "The term `Common Stock' means the common capital stock of [IPALCO] Enterprises; provided, however, that effective, and conditioned, upon the consummation of the Agreement and Plan of Share Exchange between IPALCO Enterprises, Inc. and The AES Corporation, the term `Common Stock' means the common capital stock of The AES Corporation."
The Thrift Plan could not reasonably have been clearer in requiring originally that the employer's matching contributions be invested in IPALCO common stock, and in requiring that those investments be held in the employer's stock until distribution. Those original requirements in the plan itself did not violate ERISA.
The conversion of IPALCO stock to AES stock presents a different picture. IPALCO itself, by entering into the AES transaction and then amending the Thrift Plan so as to require conversion of the existing IPALCO stock to AES stock, without allowing the Committee discretion to take other action regarding the IPALCO stock, was arguably exercising authority and control over existing plan assets. Such authority and control imply that IPALCO itself was undertaking a fiduciary role under ERISA. See 29 U.S.C. § 1002(21)(A)(i) (a person is a fiduciary with respect to a plan to the extent she "exercises any authority or control respecting management or disposition of its assets"); Peoria Union Stock Yards Co. Retirement Plan v. Penn Mut. Life Ins. Co., 698 F.2d 320, 327 (7th Cir. 1982) (plan administrator was fiduciary under this definition); see also Wolin v. Smith Barney Inc., 83 F.3d 847, 849 (7th Cir. 1996) (broker was fiduciary under ERISA where he rendered advice to plan administrators pursuant to an agreement, was paid for the advice, and had "influence approaching control over the plan's investment decisions"), disapproved on other grounds, Klehr v. A.O. Smith Corp., 521 U.S. 179, 194 (1997).
This reasoning would not apply to any decision to make new employer contributions in the form of employer stock, which would remain a matter of plan design. But this reasoning could apply to the management or control of the existing assets at the time of the AES transaction. See King v. National Human Resource Committee, Inc., 218 F.3d 719, 724 (7th Cir. 2000) (treating plan amendment as plan sponsor's non-fiduciary action not subject to fiduciary standards, but treating decision about investment of existing plan assets as subject to ERISA fiduciary standards); Reich v. Hall Holding Co., 990 F. Supp. 955, 959-60 (N.D.Ohio. 1998), aff'd, 285 F.3d 414 (6th Cir. 2002) (holding that an ESOP's purchase of stock at inflated prices with cash already transferred to the ESOP was an action involving management of assets and was subject to fiduciary standards; rejecting the argument that the purchase was only the act of a plan sponsor). Those existing assets held in the form of IPALCO stock had already generated tax benefits for IPALCO, and the Thrift Plan participants and beneficiaries already had vested interests in those assets. Thus, as applied to the decision to convert IPALCO stock held in the Thrift Plan into AES stock while amending the Thrift Plan to prohibit the Committee from taking any other action with respect to the existing IPALCO stock, IPALCO and at least some individual defendants would be subject to ERISA's fiduciary standards. Accordingly, the court's conclusions regarding Count One appear to apply under Count Two, as well.
The Seventh Circuit has written broadly that "the defined functions of a fiduciary do not include plan design, the amendment of a plan, or the termination of a plan." E.g., King v. National Human Resource Committee, Inc., 218 F.3d at 723. That broad statement does not apply, however, to a plan "amendment" that has the effect of dictating a change in the way existing plan assets must be invested.
Plaintiffs' second argument is that ERISA may sometimes require a fiduciary to violate the terms of a plan if those terms would conflict with ERISA itself. Plaintiffs seek to apply this reasoning to the Thrift Plan's continued holding and new investment in IPALCO stock after the AES agreement was inked. To support this argument, plaintiffs cite a line of authority for the general proposition that a fiduciary may be permitted or even required to violate the terms of a plan if complying with the plan would violate ERISA.
The clarity of the requirement that the employer matching contributions be invested in employer stock distinguishes this case from a line of cases the plaintiffs rely upon in Count Two. The most extensive consideration of the problem appears in Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995). In that case, participants in an employee stock ownership plan ("ESOP") alleged that the plan committee members had violated their fiduciary obligations under ERISA by continuing to invest in the employer's stock while the employer encountered severe financial difficulties that ended in bankruptcy. The district court had granted the defendants' motion for summary judgment, reasoning that the terms of the plan required the defendants to invest the ESOP funds only in the employer's stock. The Third Circuit vacated and remanded for further proceedings.
Most important, the Third Circuit held that the plan document simply did not require that all funds be invested in the employer's stock. 62 F.3d at 567. Because the plan directed only that funds would be invested "primarily" in the employer's stock, the defendants were still required to exercise discretionary judgment as to investment decisions. Such decisions were subject to ERISA's fiduciary standards. The Moench court therefore distinguished its decision from a case like this one, where the plan could not be clearer regarding investment of the employer's matching contributions. See id. at 567 n. 4 ("we are not concerned with a situation in which an ESOP plan in absolutely unmistakable terms requires that the fiduciary invest the assets in the employer's securities regardless of the surrounding circumstances"). See also In re McKesson HBOC, Inc. ERISA Litigation, 2002 WL 31431588, *5 (N.D.Cal. Sept. 30, 2002) (distinguishing Moench and Kuper on this basis, and granting motion to dismiss in part with leave to amend).
The Moench court went on to say that it did not intend to suggest that there could never be a breach of fiduciary duty in such a case, 62 F.3d at 567 n. 4, but that comment simply left open the question this court faces regarding Count Two. For cases in which plan fiduciaries have discretion regarding investments in the employer's securities, the Moench court held that courts should presume that an ESOP's investments in the employer's securities were lawful and should subject those decisions to review for an abuse of discretion. Id. at 571-72.
Plaintiffs rely on In re Ikon Office Solutions, Inc. Securities Litigation, 86 F. Supp.2d 481, 492-93 (E.D.Pa. 2000), in which the district court denied a motion to dismiss ERISA breach of fiduciary claims based on continued investments in the employer's stock. Like the Thrift Plan in this case, the plan in question included self-directed investment choices among different investment funds, plus the employer's matching contributions, which were invested only in employer stock. The district court did not reach a definitive conclusion as to whether the plan merely encouraged or actually required (a) that the employer's stock be available for self-directed investments or (b) that matching contributions be invested only in employer stock. See 86 F. Supp.2d at 490-93. The district court chose to deny the motion in light of Moench and to await further factual development to see whether the plaintiffs could meet their "very high burden" under Moench. Id. at 493. The court did not read Moench as limited to cases in which the plan allowed room for discretionary judgments about investment in the employer's securities.
Although the Ikon Office Solutions opinion is instructive on many issues, this court respectfully disagrees with that court's broad reading of Moench and the Ikon Office Solutions decision on this issue, at least as applied to an employer's matching contributions. ERISA allows an employer who establishes a plan to require that its matching contributions be invested only in its own stock, regardless of the circumstances. To respect such decisions about plan design, ERISA should not be construed so as to require the plan administrators to violate clear instructions in the plan.
On this point, plaintiffs also cite Arakelian v. National Western Life Ins. Co., 680 F. Supp. 400, 405-06 (D.D.C. 1987), which denied in relevant part a defense motion for summary judgment. The plan in question required the trustees to invest all funds in the employer's annuity contracts, and the court held that the trustees did not act as fiduciaries under ERISA in complying with those instructions in the plan. 680 F. Supp. at 404-05. The court found, however, that the plan sponsor might have violated ERISA by imposing that requirement without investigating the merits of such investments. Id. at 406. That decision is not persuasive on that issue because it fails to take into account the law about plan design decisions.
In Kuper v. Iovenko, 66 F.3d 1447 (6th Cir. 1995), the Sixth Circuit affirmed summary judgment for a benefit plan's fiduciaries who had been sued for continuing to invest ESOP assets in the employer's stock. The plan in the case provided that the plan was designed to invest "primarily" in the employer's stock. 66 F.3d at 1450. In the course of that decision, the Sixth Circuit opined that ERISA prohibits a plan from providing that it may invest only in employer stock: "a plan provision that completely prohibits diversification of ESOP assets necessarily violates the purposes of ERISA." 66 F.3d at 1457. This latter statement was plainly obiter dicta because the plan, like the plan in Moench, required only that the investments be "primarily" in the employer's securities.
Also, the Sixth Circuit did not cite any direct authority for this proposition. The court found support in Moench, though without recognizing that Moench was built on the premise that the plan in that case did not require that all assets be invested in employer stock. The court in Kuper then went on to apply the Moench standard and held that there had been no breach of that standard. Id. at 1459-60.
This court does not disagree with the result in Kuper, but sees no support for the sweeping statement in dicta that ERISA prohibits an ESOP from requiring that assets be held in employer stock. That statement effectively intrudes on the freedom that ERISA allows in matters of plan design. Along these lines, it is important to remember that ERISA is a compromise between competing concerns. The law was written to protect employees' interests, but without creating a system that would be so complex or burdensome as to discourage employers from even offering benefit plans. See Varity Corp. v. Howe, 516 U.S. 489, 497 (1996). Also, the approach of Kuper and Moench can put trustees of plans in a very difficult position. A fiduciary who invests plan assets in a way that is contrary to the written terms of a plan can be held liable for a breach of fiduciary duty. See California Ironworkers Field Pension Trust v. Loomis Sayles Co., 259 F.3d 1036, 1042 (9th Cir. 2001), citing Dardaganis v. Grace Capital, Inc., 889 F.2d 1237, 1241-42 (2d Cir. 1989). If a fiduciary can also be held liable for investing plan assets in a way that follows the mandatory terms of a plan, there is a great risk that the fiduciary becomes in effect a guarantor of good investment results.
When IPALCO entered into the agreement with AES, however, IPALCO amended the Thrift Plan so as to convert all of the employer-matched contributions of IPALCO stock to AES stock. The result was not different in practical effect from a decision by IPALCO to order the Committee to sell all such IPALCO stock and to invest in some other company specified by IPALCO. The "plan design" cases do not require that such a decision to change existing plan investments be treated as a matter of plan design that is left to the complete discretion of the plan sponsor.
It remains to be seen whether plaintiffs can come forward with evidence to support their theories of liability in this case. For the foregoing reasons, however, the court denies defendants' motion to dismiss the amended complaint for failure to state a claim upon which relief can be granted.
So ordered.