Gray v. Citigroup Inc. , 662 F.3d 128 ( 2011 )

Judge STRAUB dissents in part and concurs in part in a separate opinion.

JOHN M. WALKER, JR., Circuit Judge:

Plaintiffs, participants in retirement plans offered by defendants Citigroup Inc. and Citibank, N.A., and covered by the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001 et seq., appeal from the judgment of the United States District Court for the Southern District of New York (Sidney H. Stein, Judge) dismissing their ERISA class action complaint.¹ Plan documents required that a stock fund consisting primarily of employer stock (the Citigroup Common Stock Fund) be offered among the investment options. Plaintiffs allege that, because Citigroup stock became an imprudent investment, defendants’ failure to limit plan participants’ ability to invest in the company violated ERISA. We hold that the plan fiduciaries’ decision to continue offering participants the opportunity to invest in Citigroup stock should be reviewed for an abuse of discretion, and we find that they did not abuse their discretion here. We also hold that defendants did not have any affirmative duty to disclose to plan participants nonpublic information regarding the expected performance of Citigroup stock, and that the complaint does not sufficiently allege that defendants, in their fiduciary capacities, made any knowing misstatements to plan participants regarding Citigroup stock. We therefore AFFIRM the district court’s dismissal of plaintiffs’ complaint.

BACKGROUND

1. Factual Background

Plaintiffs are participants in the Citigroup 401(k) Plan (the “Citigroup Plan”) or the Citibuilder 401(k) Plan for Puerto Rico (the “Citibuilder Plan”) (collectively, the “Plans”). These employee pension benefit plans are governed by ERISA, which characterizes them as “eligible individual account plans.”² 29 U.S.C. § 1107(d)(3); see also 29 U.S.C. § 1002(2)(A) (defining “employee pension benefit plan”). Defendant Citigroup Inc. (“Citigroup”), a Delaware corporation and financial services company, is the sponsor of the Citigroup Plan. Defendant Citibank, N.A. (“Citibank”), a subsidiary of Citigroup, is the sponsor of the Citibuilder Plan and the trustee of the Citigroup Plan. The Citibuilder Plan’s trustee — not a defendant in this action — is Banco Popular de Puerto Rico. Each Plan is managed by the same two committees: the “Administration Committee,” consisting of eight members, charged with administering the Plans and construing the Plans’ terms, and the “Investment Committee,” consisting of ten members, responsible for selecting the investment fund options offered to Plan participants.

The Citigroup Plan is offered to Citigroup employees, and the Citibuilder Plan is offered to Puerto Rico employees of Citibank. In all material respects, the Plans are the same. Participants in each Plan may make pre-tax contributions, up to a certain percentage of their salary, to individual retirement accounts. The participants are then free to allocate the funds within their accounts among approximately 20 to 40 investment options selected by the Investment Committee. Both Plans state that participants’ accounts are to be invested in these investment options “in the proportions directed by the Participant.”

The Citigroup Common Stock Fund (the “Stock Fund” or the “Fund”) is an investment option offered by both Plans, which define the Fund as “an Investment Fund comprised of shares of Citigroup Common Stock.” By offering the Stock Fund, the Plans provide a vehicle that enables Plan participants to invest in the stock of their employer. The Plans also authorize the Fund to “hold cash and short-term investments in addition to shares of Citigroup Common Stock,” “[s]olely in order to permit the orderly purchase of Citigroup Common Stock in a volume that does not disrupt the stock market and in order to pay benefits hereunder.”

Both Plans mandate that the Fund be included as an investment option. Section 7.01 of each provides that the Plan trustee “shall maintain, within the Trust, the Citigroup Common Stock Fund and other Investment Funds,” and section 7.01 of the Citigroup Plan adds that “the Citigroup Common Stock Fund shall be permanently maintained as an Investment Fund under the Plan.” Section 7.09(e) of each Plan states that “provisions in the Plan mandate the creation and continuation of the Citigroup Common Stock Fund.” Further, section 15.06(b) of the Citigroup Plan requires that the Trustee “maintain at least 3 Investment Funds in addition to the Citigroup Common Stock Fund.”

II. Procedural History

Plaintiffs filed their Consolidated Class Action Complaint on September 15, 2008, following a sharp drop in the price of Citigroup stock that began in late 2007 and continued into 2008. Citigroup, Citibank, and the Administration and Investment Committees are all defendants, as are Charles Prince (“Prince”), Citigroup’s CEO from 2003 through November 2007, and each member of Citigroup’s Board of Directors (with Prince, the “Director Defendants”). Plaintiffs challenge defendants’ management of the Plans and, in particular, the Stock Fund. Plaintiffs represent a putative class of participants in or beneficiaries of the Plans who invested in Citigroup stock from January 1, 2007 through January 15, 2008 (the “Class Period”), during which Citigroup’s share price fell from $55.70 to $26.94.

Plaintiffs allege that Citigroup’s participation in the ill-fated subprime-mortgage market caused the price drop during the Class Period. Citigroup, according to plaintiffs, consistently downplayed its exposure to that market, even as it recognized the need to start reducing its sub-prime-mortgage exposure in late 2006. At the end of 2007, Citigroup publicly reported a subprime-related loss of $18.1 billion for the fourth quarter, and further substantial losses continued through 2008.

Count I of the Complaint (the “Prudence Claim”) alleges that the Investment Committee, the Administration Committee, Citigroup, and Citibank breached their fiduciary duties of prudence and loyalty by refusing to divest the Plans of Citigroup stock even though Citigroup’s “perilous operations tied to the subprime securities market” made it an imprudent investment option. Plaintiffs argue that a prudent fiduciary would have foreseen a drop in the price of Citigroup stock and either suspended participants’ ability to invest in the Stock Fund or diversified the Fund so that it held less Citigroup stock. Count II (the “Communications Claim”) alleges that Citigroup, the Administration Committee, and Prince breached their fiduciary duties by failing to provide complete and accurate information to Plan participants regarding the Fund and its exposure to the risks associated with the subprime market.

Counts III-VI, in substance, are derivative of the violations alleged in Counts I and II. Count III alleges that Citigroup and the Director Defendants failed to properly monitor the fiduciaries that they appointed; Count IV alleges that the same defendants, who had some authority to appoint members of the Administration and Investment Committees, failed to disclose necessary information about Citigroup’s financial status to these members; Count V alleges that all defendants breached their fiduciary duty of loyalty by putting the interests of Citigroup and themselves above the interests of Plan participants; and Count VI alleges that Citigroup, Citibank, and the Director Defendants are liable as co-fiduciaries for the actions of their co-defendants.

On August 31, 2009, the district court granted in full defendants’ motion to dismiss. In re Citigroup ERISA Litig., No. 07-cv-9790, 2009 WL 2762708 (S.D.N.Y. Aug. 31, 2009). The district court held that plaintiffs failed to state a claim against defendants related to the Plans’ continued investment in Citigroup stock because “defendants had no discretion whatsoever to eliminate Citigroup stock as an investment option, and defendants were not acting as fiduciaries to the extent that they maintained Citigroup stock as an investment option.” Id. at *8 (internal citation omitted). The district court found, alternatively, that even if defendants did have discretion to eliminate Citigroup stock, they were entitled to a presumption that investment in the stock, in accordance with the Plans’ terms, was prudent and that the facts alleged by plaintiffs, even if proven, were insufficient to overcome this presumption. Id. at *15-19. As for the Communications Claim, the district court held that defendants had no duty to disclose information about Citigroup’s financial condition and that any alleged misstatements made by defendants were either not knowingly false or not made by defendants acting in their fiduciary capacities. Id. at *20-25. The district court also dismissed plaintiffs’ claims regarding defendants’ failure to monitor Plan fiduciaries, failure to disclose information to co-fiduciaries, and breach of the duty of loyalty. Id. at *25-27.

Plaintiffs now appeal from the district court’s judgment dismissing the complaint.

DISCUSSION

We review de novo a district court’s dismissal under Federal Rule of Civil Procedure 12(b)(6). See, e.g., Maloney v. Soc. Sec. Admin., 517 F.3d 70, 74 (2d Cir.2008). We accept as true the facts alleged in the complaint, and may consider documents incorporated by reference in the complaint and documents upon which the complaint “relies heavily.” DiFolco v. MSNBC Cable LLC, 622 F.3d 104, 111 (2d Cir.2010) (internal quotation marks omitted). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)).

ERISA’s central purpose is “to protect beneficiaries of employee benefit plans.” Slupinski v. First Unum Life Ins. Co., 554 F.3d 38, 47 (2d Cir.2009). The statute does so by imposing fiduciary duties of prudence and loyalty on plan fiduciaries. The duty of prudence requires that fiduciaries act “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.” 29 U.S.C. § 1104(a)(1)(B). The duty of loyalty requires fiduciaries to act “solely in the interest” of plan participants and beneficiaries. Id. § 1104(a)(1).

A person is only subject to these fiduciary duties “to the extent” that the person, among other things, “exercises any discretionary authority or discretionary control respecting management of such plan” or “has any discretionary authority or discretionary responsibility in the administration of such plan.” 29 U.S.C. § 1002(21)(A). As a result, “a person may be an ERISA fiduciary with respect to certain matters but not others.” Harris Trust & Sav. Bank v. John Hancock Mut. Life Ins. Co., 302 F.3d 18, 28 (2d Cir.2002) (quoting F.H. Krear & Co. v. Nineteen Named Trustees, 810 F.2d 1250, 1259 (2d Cir.1987)). Therefore, in suits alleging breach of fiduciary duty, the “threshold question” is whether the defendants were acting as fiduciaries “when taking the action subject to complaint.” Pegram v. Herdrich, 530 U.S. 211, 226, 120 S.Ct. 2143, 147 L.Ed.2d 164 (2000).

In their Prudence Claim, plaintiffs allege that the Investment Committee, the Administration Committee, Citigroup, and Citibank violated their duties of prudence and loyalty by continuing to offer the Stock Fund as an investment option and by refusing to divest the Fund of Citigroup stock. Plaintiffs’ Communications Claim alleges that Citigroup, Prince, and the Administration Committee violated their duties of prudence and loyalty by failing to provide participants with complete and accurate information about Citigroup’s financial status. For the reasons that follow, we agree with the district court that plaintiffs have failed to state a claim for relief as to any defendant.

I. Prudence Claim

While plaintiffs bring the Prudence Claim against the Investment Committee, the Administration Committee, Citigroup, and Citibank, only the Investment Committee and Administration Committee were fiduciaries with respect to plaintiffs’ ability to invest through the Plan in Citigroup stock. The Plans delegated to the Investment Committee the authority to add or eliminate investment funds, and the Plans delegated to the Administration Committee the authority to impose timing and frequency restrictions on participants’ investment selections. Citigroup and Citibank, by contrast, lacked the authority to veto the Investment Committee’s investment selections. Plaintiffs nevertheless allege that Citigroup and Citibank acted as “de facto fiduciaries” with respect to investment selection. Plaintiffs allege that Citigroup had “effective control over the activities of its officers and employees” on the Investment and Administration Committees, but do not provide any example of this “effective control,” nor do they suggest what actions Citigroup took as a de facto fiduciary. Similarly, plaintiffs do not provide any description whatsoever of how Citibank “retained” certain duties delegated under the Citibuilder Plan to the Investment and Administration Committees.

However, even if we assume that each of the defendants — and not just the Investment Committee — was a fiduciary for investment-selection purposes, plaintiffs’ claims are still met with two obstacles: (1) the Plan language mandating that the Stock Fund be included as an investment option and (2) the “favored status Congress has granted to employee stock investments in their own companies.” Langbecker v. Elec. Data Sys. Corp., 476 F.3d 299, 308 (5th Cir.2007). These obstacles lead us to conclude that the Investment and Administration Committees’ decisions not to divest the Plans of Citigroup stock or impose restrictions on participants’ investment in that stock are entitled to a presumption of prudence and should be reviewed for an abuse of discretion, as opposed to a stricter standard. We hold that plaintiffs have not alleged facts that would establish such an abuse.

A. A Presumption of ERISA Compliance in Employee Stock Ownership Plans and Eligible Individual Account Plans

Plaintiffs’ claims place in tension two of ERISA’s core goals: (1) the protection of employee retirement savings through the imposition of fiduciary duties and (2) the encouragement of employee ownership through the special status provided to employee stock ownership plans (“ESOPs”) and eligible individual account plans (“EIAPs”).³ Congress enacted ERISA to “protect[] employee pensions and other benefits.” Varity Corp. v. Howe, 516 U.S. 489, 496, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996). As many courts have recognized, however, ESOPs, by definition, are “designed to invest primarily in qualifying employer securities,” 29 U.S.C. § 1107(d)(6)(A), and therefore “place! ] employee retirement assets at much greater risk than does the typical diversified ERISA plan,” Martin v. Feilen, 965 F.2d 660, 664 (8th Cir.1992); see also Quan v. Computer Scis. Corp., 623 F.3d 870, 879 (9th Cir.2010) (citing the “tension” between the duty of prudence and Congress’s preference for employees’ investment in employer stock). Due to the risk inherent in employees’ placing their retirement assets in a single, undiversified stock fund, Congress has expressed concern that its goal of encouraging employee ownership of the company’s stock could “be made unattainable by regulations and rulings which treat employee stock ownership plans as conventional retirement plans.” Tax Reform Act of 1976, Pub.L. No. 94-455, § 803(h), 90 Stat. 1520,1590. Accordingly, Congress has encouraged ESOP creation by, for example, exempting ESOPs from ERISA’s “prudence requirement (only to the extent that it requires diversification)” and from the statute’s “strict prohibitions against dealing with a party in interest, and against self-dealing.” Moench v. Robertson, 62 F.3d 553, 568 (3d Cir.1995).

ERISA requires that fiduciaries act “in accordance with the documents ... governing the plan insofar as such documents ... are consistent with the provisions of [ERISA].” 29 U.S.C. § 1104(a)(1)(D). The Act does not, however, explain when, if ever, plan language requiring investment in employer stock might become inconsistent with the statute’s fiduciary obligations such that fiduciaries would be required to disobey the requirements of the ESOP and halt the purchase of, or perhaps even require the sale of, the employer’s stock.

The Third, Fifth, Sixth, and Ninth Circuits have addressed this question, and we find their decisions helpful. The Third Circuit, in Moench v. Robertson, 62 F.3d 553, adopted a presumption of compliance with ERISA when an ESOP fiduciary invests assets in the employer’s stock. There, a participant in an ESOP challenged the ESOP’s continued investment in employer stock after the stock’s share price dropped from $18.25 per share to $0.25 per share over a two-year period. Id. at 557. The court noted that while “ESOPs, unlike pension plans, are not intended to guarantee retirement benefits,” id. at 568, “ESOPs are covered by ERISA’s stringent requirements, and [except for in enumerated circumstances not directly applicable here] ESOP fiduciaries must act in accordance with the duties of loyalty and care,” id. at 569. The court proceeded to describe the standard by which it would judge an ESOP fiduciary’s refusal to divest an ESOP of employer stock:

[A]n ESOP fiduciary who invests the assets in employer stock is entitled to a presumption that it acted consistently with ERISA by virtue of that decision. However, the plaintiff may overcome that presumption by establishing that the fiduciary abused its discretion by investing in employer securities.

Id. at 571. The court remanded the case to the district court for a summary judgment determination under this new standard. Id. at 572. More recently, the Third Circuit expanded this rule to include situations where, as here, an employer stock fund is one of many investment options in an EIAP. See Edgar v. Avaya, Inc., 503 F.3d 340, 347-48 (3d Cir.2007) (“[W]e conclude that the District Court correctly determined that Moench’s abuse of discretion standard governs judicial review of defendants’ decision to offer the Avaya Stock Fund as an investment option.”).

The Sixth, Fifth, and Ninth Circuits have all adopted the Moench presumption. In Kuper v. Iovenko, 66 F.3d 1447 (6th Cir.1995), the employer’s stock price had dropped from more than $50 per share to just over $10 per share. Id. at 1451. The court “agree[d] with and adopt[ed] the Third Circuit’s holding that a proper balance between the purpose of ERISA and the nature of ESOPs requires that we review an ESOP fiduciary’s decision to invest in employer securities for an abuse of discretion.” Id. at 1459. A failure to properly investigate the prudence of continued investment in employer stock could not alone overcome the presumption; rather, plaintiffs were required to demonstrate that conducting such an investigation “would have revealed to a reasonable fiduciary that the investment at issue was improvident.” Id. at 1460. The Fifth and Ninth Circuits have also applied the presumption to situations in which employer stock funds were offered as investment options within EIAPs. See Kirschbaum v. Reliant Energy, Inc., 526 F.3d 243, 254 (5th Cir.2008) (“The Moench presumption ... applies to any allegations of fiduciary duty breach for failure to divest an EIAP or ESOP of company stock.”); Quan v. Computer Scis. Corp., 623 F.3d 870, 881 (9th Cir.2010) (adopting the presumption because it “is consistent with the statutory language of ERISA and the trust principles by which ERISA is interpreted”). No court of appeals has rejected the presumption of prudence.

We now join our sister circuits in adopting the Moench presumption — and do so with respect to both EIAPs and ESOPs — because, as those courts have recognized, it provides the best accommodation between the competing ERISA values of protecting retirement assets and encouraging investment in employer stock. An ESOP or EIAP fiduciary’s decision to continue to offer plan participants the opportunity to invest in employer stock should therefore be reviewed for an abuse of discretion. This presumption may be rebutted if an EIAP or ESOP fiduciary abuses his discretion in continuing to offer plan participants the opportunity to invest in employer stock. We endorse the “guiding principle” recognized in Quan that judicial scrutiny should increase with the degree of discretion a plan gives its fiduciaries to invest. See Quan, 623 F.3d at 883 (citing Kirschbaum, 526 F.3d at 255 & n. 9). Thus a fiduciary’s failure to divest from company stock is less likely to constitute an abuse of discretion if the plan’s terms require — rather than merely permit — investment in company stock.

We reject plaintiffs’ argument — endorsed by the dissent — that we should analyze the decision to offer the Stock Fund as we would a fiduciary’s decision to offer any other investment option. We agree with the Sixth and Ninth Circuits that were it otherwise, fiduciaries would be equally vulnerable to suit either for not selling if they adhered to the plan’s terms and the company stock decreased in value, or for deviating from the plan by selling if the stock later increased in value. See Kirschbaum, 526 F.3d at 256 n. 13; Quan, 623 F.3d at 881. Such a result would be particularly troublesome in light of the “long-term horizon of retirement investing,” which “requires protecting fiduciaries from pressure to divest when the company’s stock drops.” Quan, 623 F.3d at 882 (quoting Kirschbaum, 526 F.3d at 254). Also, as a general matter, plaintiffs’ proposal fails to adequately account for Congress’s concern that employees’ ability to invest in employer stock would be endangered were courts to apply ERISA to ESOPs and EIAPs in the same way they apply the statute to other retirement plans. See, e.g., Tax Reform Act of 1976, Pub.L. No. 94-455, § 803(h), 90 Stat. 1583, 1590 (expressing the concern that treating ESOP plans as conventional retirement plans will “block the establishment and success of these plans”).

The dissent argues that, rather than providing an “accommodation” between competing interests, our adoption of the Moench presumption allows the policies favoring ESOPs to “override the policies of ERISA.” Dissent at 152. The “policy concerns” we cite today do not, in Judge Straub’s view, justify the adoption of a standard of review that “renders moot ERISA’s ‘prudent man’ standard of conduct.” Id. at 148, 151. We emphasize in response that, more than simply accommodating competing policy considerations, the Moench presumption balances the duty of prudence against a fiduciary’s explicit obligation to act in accordance with plan provisions to the extent they are consistent with ERISA. See 29 U.S.C. § 1104(a)(1)(D). When, as here, plan documents define an EIAP as “comprised of shares of’ employer stock, and authorize the holding of “cash and short-term investments” only to facilitate the “orderly purchase” of more company stock, the fiduciary is given little discretion to alter the composition of investments. If we were to judge that fiduciary’s conduct using the same standard of review applied to fiduciaries of typical retirement plans, we would ignore not only the policy considerations articulated by Congress but also the very terms of the plan itself. Our endorsement of Moench is therefore based not on “indefensible policy concerns,” Dissent at 154, but on a recognition of the competing obligations imposed on ERISA fiduciaries.

The district court also ruled that defendants were insulated from liability because they had no discretion to divest the Plans of employer stock. In re Citigroup ERISA Litig., 2009 WL 2762708, at *13. We take issue with this holding because such a rule would leave employees’ retirement savings that are invested in ESOPs or EIAPs without any protection at all — a result that Congress sought to avoid in enacting ERISA. See Kuper, 66 F.3d at 1457 (“[T]he purpose of ESOPs cannot override ERISA’s goal of ensuring the proper management and soundness of employee benefit plans.”). Especially in light of ERISA’s requirement that fiduciaries follow plan terms only to the extent that they are consistent with ERISA, 29 U.S.C. § 1104(a)(1)(D), we decline to hold that defendants’ decision to continue to offer the Stock Fund is beyond our power to review.

Finally, we reject plaintiffs’ argument that the Moench presumption should not apply at the pleading stage. The “presumption” is not an evidentiary presumption; it is a standard of review applied to a decision made by an ERISA fiduciary. Where plaintiffs do not allege facts sufficient to establish that a plan fiduciary has abused his discretion, there is no reason not to grant a motion to dismiss. See Edgar, 503 F.3d at 349 (applying Moench to grant a motion to dismiss because there was “no reason to allow [the] ease to proceed to discovery when, even if the allegations [were] proven true, [the plaintiff could not] establish that defendants abused their discretion”); Gearren v. The McGraw-Hill Cos., Inc., 690 F.Supp.2d 254, 269 (S.D.N.Y.2010).

B. Applying the Moench Presumption

We turn now to whether plaintiffs have pled facts sufficient to overcome the presumption of prudence and successfully alleged that the Investment and Administration Committees abused their discretion by allowing participants to continue to invest in Citigroup stock. The Moench court, relying on trust law, explained that fiduciaries should override Plan terms requiring or strongly favoring investment in employer stock only when “owing to circumstances not known to the [plan] settlor and not anticipated by him,” maintaining the investment in company stock “would defeat or substantially impair the accomplishment of the purposes of the [Plan].” 62 F.3d at 571 (quoting Restatement (Second) of Trusts § 227 cmt. g). We agree with this formulation and cannot imagine that an ESOP or EIAP settlor, mindful of the long-term horizon of retirement savings, would intend that fiduciaries divest from employer stock at the sign of any impending price decline. Rather, we believe that only circumstances placing the employer in a “dire situation” that was objectively unforeseeable by the settlor could require fiduciaries to override plan terms. Edgar, 503 F.3d at 348. The presumption is to serve as a “substantial shield,” Kirschbaum, 526 F.3d at 256, that should protect fiduciaries from liability where “there is room for reasonable fiduciaries to disagree as to whether they are bound to divest from company stock,” Quan, 623 F.3d at 882. The test of prudence is, as the dissent points out, one of conduct rather than results, and the abuse of discretion standard ensures that a fiduciary’s conduct cannot be second-guessed so long as it is reasonable.

Although proof of the employer’s impending collapse may not be required to establish liability, “[m]ere stock fluctuations, even those that trend downhill significantly, are insufficient to establish the requisite imprudence to rebut the Moench presumption.” Wright v. Or. Metallurgical Corp., 360 F.3d 1090, 1099 (9th Cir.2004). We judge a fiduciary’s actions based upon information available to the fiduciary at the time of each investment decision and not “from the vantage point of hindsight.” 29 U.S.C. § 1104(a)(1)(B) (establishing that the prudence of an ERISA fiduciary is to be measured in light of “the circumstances then prevailing”); Chao v. Merino, 452 F.3d 174, 182 (2d Cir.2006) (quoting Katsaros v. Cody, 744 F.2d 270, 279 (2d Cir.1984)). We cannot rely, after the fact, on the magnitude of the decrease in the employer’s stock price; rather, we must consider the extent to which plan fiduciaries at a given point in time reasonably could have predicted the outcome that followed.

Here, plaintiffs allege that Citigroup made ill-advised investments in the sub-prime-mortgage market while hiding the extent of those investments from Plan participants and the public. They also allege that, just prior to the start of the Class Period, Citigroup became aware of the impending collapse of the subprime market and that, ultimately, Citigroup reported losses of about $30 billion due to its sub-prime exposure. As a result, plaintiffs argue, Citigroup’s stock price was “inflated” during the Class Period because the price did not reflect the company’s true underlying value. Of course, as plaintiffs acknowledge, these facts alone cannot sufficiently plead a fiduciary breach: that Citigroup made bad business decisions is insufficient to show that the company was in a “dire situation,” much less that the Investment Committee or the Administration Committee knew or should have known that the situation was dire. Like the Fifth Circuit in Kirschbaum, we “cannot say that whenever plan fiduciaries are aware of circumstances that may impair the value of company stock, they have a fiduciary duty to depart from ESOP or EIAP plan provisions.” See Kirschbaum, 526 F.3d at 256.

In an attempt to suggest the Investment and Administration Committees’ knowledge of Citigroup’s situation, plaintiffs allege in conclusory fashion that the Committee “knew or should have known about Citigroup’s massive subprime exposure as a result of their responsibilities as fiduciaries of the Plans.” Compl. ¶ 188. Plaintiffs add that, even if defendants were unaware of Citigroup’s subprime exposure, they only lacked such knowledge because they “failed to conduct an appropriate investigation into whether Citigroup stock was a prudent investment for the Plans.” Compl. ¶ 189.

Plaintiffs’ allegations are insufficient to state a claim against the Investment and Administration Committees for breach of the duty of prudence. As an initial matter, plaintiffs’ bald assertion, without any supporting allegations, that the Investment and Administration Committees knew about Citigroup’s subprime activities cannot support their claims. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (“[A] plaintiffs obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions.... ”). Moreover, that the fiduciaries allegedly failed to investigate the continued prudence of investing in Citigroup stock cannot alone rescue plaintiffs’ claim; plaintiffs have not pled facts that, if proved, would show that such an investigation during the Class Period would have led defendants to conclude that Citigroup was no longer a prudent investment. As we noted above, plaintiffs must allege facts that, if proved, would show that an “adequate investigation would have revealed to a reasonable fiduciary that the investment at issue was improvident.” Kuper, 66 F.3d at 1460. This they have not done.

Additionally, even if we assume that an investigation would have revealed all of the facts that plaintiffs have alleged, the Investment and Administration Committees would not have been compelled to conclude that Citigroup was in a dire situation. While the Committee may have been able to uncover Citigroup’s subprime investments, the facts alleged by plaintiffs, if proved, are not sufficient to support a conclusion that the Investment and Administration Committees could have foreseen that Citigroup would eventually lose tens of billions of dollars. And even if the Committee could have done so, it would not have been compelled to find that Citigroup, with a market capitalization of almost $200 billion, was in a dire situation. While fiduciaries’ decisions are not to be judged in hindsight, we note for the record that during the Class Period, Citigroup’s share price fell from $55.70 to $28.74, a drop of just over 50%. Other courts have found plaintiffs unable to overcome the Moench presumption in the face of similar stock declines. See Kirschbaum, 526 F.3d at 247 (40% drop); Edgar, 503 F.3d at 344 (25% drop); Kuper, 66 F.3d at 1451 (80% drop).

To summarize: plaintiffs fail to allege facts sufficient to show that defendants either knew or should have known that Citigroup was in the sort of dire situation that required them to override Plan terms in order to limit participants’ investments in Citigroup stock. Plaintiffs are therefore unable to state a claim for breach of ERISA’s duty of prudence based on the inclusion of the Common Stock Fund in the Plans.

II. Communications Claim

Plaintiffs allege in Count II of their complaint that the “Communications Defendants” (Citigroup, the Administration Committee, and Prince) breached their fiduciary duty of loyalty by (1) “failing to provide complete and accurate information regarding ... Citigroup” and (2) “conveying through statements and omissions inaccurate material information regarding the soundness of Citigroup stock.” Compl. ¶ 237. We reject the first theory of liability because fiduciaries have no duty to provide Plan participants with non-public information that could pertain to the expected performance of Plan investment options. And we reject the second theory because there are no facts alleged that would, if proved, support a conclusion that defendants made statements, while acting in a fiduciary capacity, that they knew to be false.

A. Duty to Provide Information

ERISA contains a “comprehensive set of ‘reporting and disclosure’ requirements.” Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 83, 115 S.Ct. 1223, 131 L.Ed.2d 94 (1995) (citing 29 U.S.C. §§ 1021-1031). The statute, for example, requires plan administrators to “describfe] the importance of diversifying the investment of retirement account assets,” 29 U.S.C. § 1021(m)(2), and to inform participants “of the risk that holding more than 20 percent of a portfolio in the security of one entity (such as employer securities) may not be adequately diversified,” id. § 1025(a)(2)(B)(ii)(II) (emphasis added). Additionally, regulations in place during the Class Period required plan administrators, in certain circumstances, to provide plan participants with a “description of the investment alternatives available under the plan and, with respect to each designated investment alternative, a general description of the investment objectives and risk and return characteristics of each such alternative.” 29 C.F.R. § 2550.404c-l(b)(2)(B)(l)(ii) (2009).

Plaintiffs do not allege any violations of these requirements. Nor could they support such a claim; the Plan documents informed plaintiffs that the Stock Fund invested only in Citigroup stock, which would be “retained in this fund regardless of market fluctuations,” and that the Fund may “undergo large price declines in adverse markets,” the risk of which “may be offset by owning other investments that follow different investment strategies.”

Plaintiffs instead argue that defendants violated ERISA’s more general duty of loyalty, 29 U.S.C. § 1104(a)(1), by failing to provide participants with information regarding the expected future performance of Citigroup stock. They rely on cases stating, in broad terms, that fiduciaries must disclose to participants information related to the participants’ benefits. See, e.g., Dobson v. Hartford Fin. Servs. Grp., Inc., 389 F.3d 386, 401 (2d Cir.2004) (“A number of authorities assert a plan fiduciary’s obligation to disclose information that is material to beneficiaries’ rights under a plan....”).

The cases cited by plaintiffs are inapposite for two reasons. First, in many of them, the court imposed a duty to inform at least in part because further information was necessary to correct a previous misstatement or to avoid misleading participants. See, e.g., Estate of Becker v. Eastman Kodak Co., 120 F.3d 5, 10 (2d Cir.1997) (relying in part on the “materially misleading information” provided by a “benefits counselor” to conclude “that Kodak breached its fiduciary duty to provide Becker with complete and accurate information about her retirement options”). Second, all of the cases cited by plaintiffs relate to administrative, not investment, matters such as participants’ eligibility for defined benefits or the calculation of such benefits; none require plan fiduciaries to disclose nonpublic information regarding the expected performance of a plan investment option. See, e.g., Devlin v. Empire Blue Cross & Blue Shield, 274 F.3d 76, 88-89 (2d Cir.2001) (holding that an employer may be hable for misstatements or omissions about the availability of lifetime life insurance benefits); Estate of Becker, 120 F.3d at 9-10 (imposing liability based on an employer’s providing misleading information about participants’ eligibility for lump-sum retirement benefits).

We decline to broaden the application of these cases to create a duty to provide participants with nonpublic information pertaining to specific investment options.⁴ ESOP fiduciaries do “not have a duty to give investment advice or to opine on the stock’s condition.” Edgar, 503 F.3d at 350 (internal quotation marks omitted). We agree with the district court that such a requirement would improperly “transform fiduciaries into investment advisors.” In re Citigroup ERISA Litig., 2009 WL 2762708, at *22. Here, the Administration Committee provided adequate warning that the Stock Fund was an undiversified investment subject to volatility and that Plan participants would be well advised to diversify their retirement savings. Even assuming that they had the ability to do so, defendants had no duty to communicate a forecast as to when this volatility would manifest itself in a sharp decline in stock price.

B. Misrepresentations

Plaintiffs next argue that, even if defendants had no affirmative duty to provide information regarding Plan investments, they nevertheless breached their duty of loyalty by making misrepresentations as to the expected performance of Citigroup stock. ERISA requires a fiduciary to “discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries.” Varity Corp. v. Howe, 516 U.S. 489, 506, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996) (quoting 29 U.S.C. § 1104(a)(1)). Because “lying is inconsistent with the duty of loyalty,” ERISA fiduciaries violate this duty when they “participate knowingly and significantly in deceiving a plan’s beneficiaries.” Id.; see also Bouboulis v. Transp. Workers Union of Am., 442 F.3d 55, 66 (2d Cir.2006).

Plaintiffs assert misrepresentation claims against Citigroup, Prince, and the Administration Committee. We hold that Citigroup and Prince were not acting in a fiduciary capacity when making the statements alleged in the complaint, and that the complaint does not adequately allege that the Administration Committee knew that it was making false or misleading statements.

1. Citigroup and Prince

Plaintiffs allege that Citigroup and Prince “regularly communicated” with Plan participants about Citigroup’s expected performance. They argue that Citigroup and Prince may be held liable, under ERISA, for these communications because they “intentionally connected” their statements to Plan benefits. This argument fails because neither Citigroup nor Prince was a Plan administrator responsible for communicating with Plan participants. Therefore, neither acted as a Plan fiduciary when making the statements at issue.

Plaintiffs rely on the Supreme Court’s decision in Varity Corp. v. Howe, 516 U.S. 489, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996), in which the Court found an employer liable for misstatements made to plan participants in part because the employer “intentionally connected” its statements to “the future of [plan] benefits.” Id. at 505, 116 S.Ct. 1065. Plaintiffs, however, overlook that the employer in Varity was also the plan administrator, id. at 491, 116 S.Ct. 1065, and that only the plan administrator is responsible for meeting ERISA’s disclosure requirements and therefore for communicating with Plan participants. 29 U.S.C. § 1132(c). That the employer in Varity “intentionally connected” its statements to plan benefits highlighted that it acted as a plan administrator and fiduciary — and not merely an employer — when making the statements in question. Cf. Amato v. W. Union Int’l, 773 F.2d 1402, 1416-17 (2d Cir.1985) (stating that an employer is only liable under ERISA for actions it takes while acting as an ERISA fiduciary), abrogated on other grounds by Mead Corp. v. Tilley, 490 U.S. 714, 721, 109 S.Ct. 2156, 104 L.Ed.2d 796 (1989). Here, Citigroup and Prince were not Plan administrators and were not responsible for communicating with Plan participants.⁵ Citigroup and Prince therefore spoke to Plan participants as employers and not as Plan fiduciaries. They cannot be held liable, at least under ERISA, for any alleged misstatements made to Citigroup employees.

2. Administration Committee

Plaintiffs also do not state a claim for relief based on alleged misstatements made by the Administration Committee because they have not adequately alleged that defendants made statements they knew to be false. Plaintiffs allege that both Plans’ Summary Plan Descriptions (SPDs), distributed by the Administration Committee, “directed the Plans’ participants to rely on Citigroup’s filings with the SEC ..., many of which ... were materially false and misleading.” Compl. ¶ 197. Plaintiffs state that the SEC filings all “failed to adequately inform participants of the true magnitude of the Company’s involvement in subprime lending and other improper business practices ..., and the risks these presented to the Company.” Compl. ¶ 237.

A fiduciary, however, may only be held liable for misstatements when “the fiduciary knows those statements are false or lack a reasonable basis in fact.” See Flanigan v. Gen. Elec. Co., 242 F.3d 78, 84 (2d Cir.2001). Here, while plaintiffs conclude that the Committee members “knew or should have known about Citigroup’s massive subprime exposure as a result of their responsibilities as fiduciaries of the Plans,” Compl. ¶ 188, they have provided no specific allegations beyond this “naked assertion,” Twombly, 550 U.S. at 557, 127 S.Ct. 1955.

Plaintiffs are also unable to support their argument that the Administration Committee members should have known of the misstatements because they should have performed an independent investigation of the accuracy of Citigroup’s SEC filings. While we cannot rule out that such an investigation may be warranted in some cases, plaintiffs have not alleged facts that, without the benefit of hindsight, show that it was warranted here. Plaintiffs have not alleged that there were any “warning flags,” specific to Citigroup, that triggered the need for an investigation. Rather, plaintiffs provide a list of publicly available articles and news reports that signaled potential trouble in the subprime market as a whole.

We are also mindful that requiring Plan fiduciaries to perform an independent investigation of SEC filings would increase the already-substantial burden borne by ERISA fiduciaries and would arguably contravene Congress’s intent “to create a system that is [not] so complex that administrative costs, or litigation expenses, unduly discourage employers from offering [ERISA] plans in the first place.” Conkright v. Frommert, — U.S. -, 130 S.Ct. 1640, 1649, 176 L.Ed.2d 469 (2010) (quoting Varity, 516 U.S. at 497, 116 S.Ct. 1065 (alterations in original)). Furthermore, we are hesitant to “run the risk of disturbing the carefully delineated corporate disclosure laws.” Baker v. Kingsley, 387 F.3d 649, 662 (7th Cir.2004). While we have the authority to create a “common law of rights and obligations” under ERISA, “the scope of permissible judicial innovation is narrower in areas where other federal actors are engaged.” Black & Decker Disability Plan v. Nord, 538 U.S. 822, 831-32, 123 S.Ct. 1965, 155 L.Ed.2d 1034 (2003) (internal quotation marks and citation omitted). Accordingly, while we intimate no view as to the possible investigatory responsibilities of other fiduciaries who are privy to additional “warning” signs or who are operating under substantially different circumstances, in the situation presented here we decline to hold that the Plan fiduciaries were required to perform an independent investigation of SEC filings before incorporating them into the SPDs.

III. Plaintiffs’ Remaining Claims

Plaintiffs also assert claims that (1) Citigroup and the Director Defendants failed to properly monitor their fiduciary co-defendants (Count III); (2) the same defendants failed to share information with their co-fiduciaries (Count IV); (3) all defendants breached their duty to avoid conflicts of interest (Count V); and (4) Citigroup, Citibank, and the Director Defendants are liable as co-fiduciaries (Count VI). Plaintiffs do not contest that Counts III, IV, and VI cannot stand if plaintiffs fail to state a claim for relief on Counts I or II. Accordingly, we affirm the district court’s dismissal of these counts.

Count V appears to be based entirely on the fact that the compensation of some of the fiduciaries was tied to the performance of Citigroup stock and that Prince and Robert Rubin, another Director Defendant, sold some of their Citigroup stock during the Class Period. Plaintiffs do not allege any specific facts suggesting that defendants’ investments in Citigroup stock prompted them to act against the interests of Plan participants. Under plaintiffs’ reasoning, almost no corporate manager could ever serve as a fiduciary of his company’s Plan. There simply is no evidence that Congress intended such a severe interpretation of the duty of loyalty. We agree with the many courts that have refused to hold that a conflict of interest claim can be based solely on the fact that an ERISA fiduciary’s compensation was linked to the company’s stock. See, e.g., In re Polaroid ERISA Litig., 362 F.Supp.2d 461, 477 (S.D.N.Y.2005); In re WorldCom, Inc. ERISA Litig., 263 F.Supp.2d 745, 768 (S.D.N.Y.2003). Accordingly, we affirm the judgment of the district court insofar as it held that plaintiffs failed to state a claim for relief on Count V.

CONCLUSION

For the foregoing reasons, we AFFIRM the district court’s dismissal of plaintiffs’ complaint.

1 . This case was argued in tandem with Gearren v. McGraw-Hill Cos., which we resolve in a separate opinion filed today.

2 . An eligible individual account plan is a defined contribution plan that is "(i) a profit-sharing, stock bonus, thrift, or savings plan; (ii) an employee stock ownership plan; or (iii) a money purchase plan which ... [is] invested primarily in qualifying employer securities.” 29 U.S.C. § 1107(d)(3)(A).

3 . An ESOP is a type of EIAP. 29 U.S.C. § 1107(d)(3)(A). Because EIAPs, like ESOPs, "promote investment in employer securities, they are subject to many of the same exceptions that apply to ESOPs.” Edgar v. Avaya, Inc., 503 F.3d 340, 347 (3rd Cir.2007). We therefore agree with the district court that "nearly all of the points made about [ESOPs' encouragement of employer-stock ownership] apply equally to EIAPs.” In re Citigroup ERISA Litig., 2009 WL 2762708, at *11 n. 5.

4 . Although the dissent would hold that ERISA fiduciaries have an affirmative duty to disclose material information to plan participants, Judge Straub acknowledges that ERISA does not explicitly impose such a duty.

5 . The dissent contends that Citigroup and Prince acted as fiduciaries because they "intentionally connected” their statements about Citigroup's financial health and stock performance to the likely future of Plan benefits. Dissent at 162 (quoting Varity, 516 U.S. at 505, 116 S.Ct. 1065). We disagree with the dissent’s characterization of the facts alleged here. The employer in Varity transferred all of its money-losing divisions into a newly created subsidiary that was destined to fail, and induced its employees to switch employers to the subsidiary by falsely assuring them that their benefits would remain secure. 516 U.S. at 492-94, 116 S.Ct. 1065. The parent corporation therefore "intentionally connected its statements about [the subsidiary’s] financial health to statements it made about the future of benefits,” which "in that context [was] an act of plan administration.” Id. at 505, 116 S.Ct. 1065 (emphasis in original). Plaintiffs, by contrast, allege only that Citigroup generally encouraged its employees— “and thus Plan participants” — to invest in Citigroup stock. Compl. ¶ 198. These allegations do not suggest the kind of intentional connection the Supreme Court relied on to find a fiduciary relationship in Varity.