The NAM joined with the Business Roundtable and the U.S. Chamber of Commerce in a brief challenging the trial court's certification of a class action involving employees of EDS who sued the company to recover losses in the value of their 401(k) portfolio when the company's stock dropped substantially. Our brief argued that § 404(c) of ERISA provides an express statutory defense to employers when stock funds in 401(k) plans are controlled by employees. The employer is not responsible for losses resulting from the investment decisions of employees. In addition, many of the employees signed releases relieving the employer of liability for investment losses, and we argued that the plain language of those releases bars a class action suit.
On January 18, 2007, the 5th Circuit overturned the class certification and sent the case back to the district court to reconsider whether this case can be handled as a class action. It ruled that, while employees may be able to sue under § 502(a)(2) of ERISA, they cannot bring an action under § 404(c) on behalf of the plan. It ruled that a Department of Labor interpretation of § 404(c) was unreasonable, and that some employees may not sue under this section if one reason for their losses was their own exercise of control over the assets. Because the class certification decision should take into account the extent to which employees controlled their own stock transactions, the court remanded the case for further consideration of this factor.
The court also ruled that releases signed by individual employees are pertinent to the certification question, and the plaintiffs may not be adequate representatives of the entire class, since there are potential conflicts over remedies and damages.