ERISA Lawsuit Can Go Ahead Against Merck

Camden, NJA recent court decision cleared the way for disgruntled employees to continue their litigation against pharmaceutical giant Merck, alleging that the company breached its fiduciary duties under the Employee Retirement Income Security Act (ERISA).

The matter goes back to 2000, when Merck became involved in a joint venture with Schering-Plough to develop the cholesterol drug Vytorin). A trial study performed by the two companies in 2004 found that there was no difference between patients treated with Vytorin and those taking similar drugs like Zocor and Lipitor.

The release of the results of the study last January began a long slide in the value of Merck stock, which fell from a high of $59.26 to $42.32 when the news was initially released. After Vytorin was repeatedly hammered in medical journals as the drug of last resort for cholesterol management, Merck stock continued to falter, reaching $37.95 per share by the end of March.

During that time, Merck stock was allegedly offered as an investment option for employee 401(k) plans.

Merck Accused of Breaching its Fiduciary Duties Under ERISA

According to the December 2009 issue of the New Jersey Employment Law Letter, Merck employees filed a lawsuit accusing the company of breaching its fiduciary duties by allowing employees to invest in Merck stock as a 401(k) option even though the company knew the stock was an imprudent investment.

In the Third US Circuit Court of Appeals, plan fiduciaries are entitled to a rebuttable presumption of prudence for investing in employer stock in recognition of the greater risk associated with plans designed to invest in employer securities. However, the employees made a plausible argument that Merck had abused its discretion. The court found that the employees alleged sufficient facts to suggest that Merck acted as a fiduciary because it had management, oversight and investment authority with respect to the 401(k) plan.

The court refused to dismiss the employees' allegations under the Employee Retirement Income Security Act (ERISA) that a fiduciary breach by their employer put their 401(k) at risk. The lawsuit against Merck under ERISA is therefore set to go forward.