Following Plan Terms: Unique ERISA Court of Appeals Decision Places Significant Burden on Fiduciaries

In Tatum v. RJR Pension Investment Committee et al., the U.S. Court of Appeals for the Fourth Circuit ruled on facts including procedural imprudence that “appear[ed] to be unprecedented in a reported ERISA case” that R.J. Reynolds Tobacco (RJR) could be liable for failing to follow a plan’s terms and liquidating its 401(k) plan’s Nabisco stock (contrary to plan terms) following the split up of RJR and Nabisco in 1999.  Stock analysts had issued positive reports for Nabisco stock.  Company executives met and recommended elimination of the Nabisco stock received in the split up and, without outside help or much analysis, the plan’s fiduciary committee followed the executives’ recommendation.  The burden now lies with RJR to prove a prudent fiduciary would have done exactly what was done.