Judge Baer in the Southern District of New York recently denied a request to dismiss an ERISA class action brought by participants in the Ambac Financial Group Savings Incentive Plan.

The participants alleged that the fiduciaries of the Ambac SIP should not have offered the company stock as a retirement investment under the plan and that the participants lost significant amounts of their retirement savings when Ambac’s stock collapsed as the truth about the company’s problems became public.  The participants brought their claims pursuant to the Employee Retirement Income Security Act (“ERISA”).

The judge rejected the notion that the plan’s language required the fiduciaries to offer Ambac stock as a plan investment option.

“In the absence of guidance from the Second Circuit, in my view the better-reasoned decisions are those that conclude that plan managers may not blindly follow plan documents in contravention of the mandates of ERISA and at the same time satisfy their fiduciary obligations,” the judge said.  He also said that the defendants had failed to point to plan language that explicitly removed their discretionary authority or immunized them from liability.

As the company’s financial problems were revealed Ambac’s stock declined from $96 per share to roughly $1 per share.

The judge also rejected defendants’ attempt to dismiss the monitoring claims.