The case arose after the spin-off of RJR Tobacco from Nabisco
which resulted in the creation of an RJR plan for Tobacco employees
and the elimination of Nabisco stock as an available investment
under the RJR plan. Unlike the usual "stock drop"
scenario in which plan fiduciaries are sued because they kept
employer stock as a plan investment, in this case the participants
claimed that the stock was eliminated as an investment option when
the price was depressed, depriving them of profits they would have
made when the stock rebounded. At issue was an amendment to the
complaint challenging the validity of the "amendment" RJR
said required liquidation of the Nabisco stock fund.
The court began by reminding us that ERISA requires that every
plan have a written amendment procedure specifying who is
authorized to adopt amendments and how they are to be adopted. In
this case, the specificity of the Plan's amendment procedure
proved fatal. It stated that the Employee Benefits Committee (EBC)
had authority to amend the plan "by written instrument."
The Plan specified in another section that: "All resolutions
or other actions taken by the EBC shall be by vote of a majority of
the members of the Committee present at any meeting, or without a
meeting by an instrument in writing signed by a majority of the
members of the Committee." The challenged amendment, which the
Court invalidated, was called an amendment but was signed only by
the secretary of the EBC. No formal EBC meeting had been held to
discuss or vote on the elimination of the Nabisco stock fund.
What About Ratification?
Did RJR's subsequent actions ratify the amendment? The Court
rejected RJR's argument that notices to participants and
subsequent amendments ratified the challenged amendment, finding
that in this case "ratification would have rendered the
specific requirements meaningless." The decision leaves open
the question of whether ratification could be used to cure adoption
failures for plans that have a less specific amendment procedure,
but suggests that there may be cases where ratification could work.
Supreme Court's recent decision in CIGNA v. Amara that plan
communications can't amend the terms of ERISA plans, which was
the subject of a previous blog post, could, however, preclude
arguments that communications ratified plan changes.
Some Best Practices
Setting aside this amendment could affect plaintiffs'
fiduciary breach claims, since the EBC members can no longer claim
that the challenged amendment required selling the Nabisco stock
when they did. However, this issue could arise in other contexts as
well, such as in determining whether certain plan amendments were
adopted by required deadlines. Some suggestions to avoid this
exposure if you want to have clear and specific procedures are:
Make sure that everyone who needs to understands your plan
amendment procedure. A provision that the "Company" may
amend a plan should specify that amendment requires action by the
Board of Directors.
If amendment authority has been delegated to a committee or
specified officers, make sure that the plan text incorporates that
Keep clear minutes reflecting votes to approve plan amendments,
including language reflecting any delegation to individuals to
execute amendments (such as "The head of HR is hereby
authorized to take any and all action necessary to implement this
resolution, including, but not limited to, executing a plan
If you intend that one Board or Committee member may be
delegated the authority to act unilaterally, spell it out in the
This decision is an alert to check whether your Plan rules are
drafted with enough flexibility to accommodate the Company's
corporate governance practices. Since there is no guarantee that a
court will recognize ratification, and there may be circumstances
where the Company will not want unauthorized action to be treated
as ratified, the best protection is to strictly follow all plan
Carol Buckman has practised in the employee
benefits field for over 25 years, advising clients on all aspects
of employee benefits and retirement plans, including questions
relating to 401(k), defined benefit and employee stock ownership
plans, welfare plans, fiduciary responsibility, prohibited
transactions and plan asset issues arising in investment fund
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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