Do existing laws provide protection for employees if their employer stock assets are lost?
Existing laws provide some protection, but it may be of limited value. Fiduciaries of all ERISA plans (such as ESOPs and 401(k) plans) must operate the plan for the “exclusive benefit of plan participants” (as the statute puts it). In ESOPs, the presumption is that assets will be invested in company stock unless the fiduciaries know or should know that it is a bad time to invest in company stock or the price is too high. In 401(k) plans, fiduciaries can allow the employer to match in company stock without limitation, subject to the same proviso. In both plans, if fiduciaries know or should know that the company stock value will face a long-term decline, they should sell the stock. The difficulty is that suing under these circumstances is costly, time-consuming, and hard to prove if there is no “smoking gun.” In the Enron case, there appears reason to believe there could be; in a case such as Lucent, it would be much more difficult. Fiduciaries may genuinely believe, along with analysts
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