In a 5-4 decision issued on June 1, 2020 in Thole v. U.S. Bank N.A., the Supreme Court of the United States significantly limited the ability of participants in ERISA defined benefit (“DB”) pension plans to bring lawsuits against the plan’s fiduciaries for breaches of their duties, even though ERISA expressly authorizes participants to bring such suits.
Two single-employer DB plan participants alleged that the plan’s fiduciaries invested the plan’s assets in violation of ERISA’s duties of prudence and loyalty and that, as a result, the plan suffered approximately $750 million in losses. The plaintiffs sought to have the defendants repay that amount and also sought injunctive relief, including the replacement of the fiduciaries.
Sections 502(a)(2) and (3) of ERISA expressly authorize lawsuits by, among others, plan participants to remedy a breach of fiduciary duty. However, despite the fact that DB plan participants have statutory standing to file suit because they fall within the scope of individuals specifically authorized under ERISA to sue for a breach of fiduciary duty, the Supreme Court nevertheless held that DB plan participants lacked constitutional standing to assert such a claim.
To have constitutional standing to bring a case, a plaintiff must demonstrate three elements: (1) that he or she has actually suffered an injury or that an injury is imminent; (2) that the defendant caused the injury; and (3) that the requested relief would likely redress the injury. Against this standard, the Supreme Court held that the plaintiffs in Thole lacked constitutional standing because, as DB plan participants, the outcome of the lawsuit would not directly impact their benefits under the plan because, in a DB plan, the terms of the plan dictate the amount of a participant’s benefit. Unlike a defined contribution plan (such as a 401(k) plan), pension benefits under a DB plan are not generally subject to adjustment based upon the plan’s investments or expenses. Thus, because even a successful lawsuit would not directly impact their benefits, the Court held that the plaintiffs had not suffered an injury that was likely to be redressed by the lawsuit and, therefore, did not have constitutional standing to bring the lawsuit.
In reaching that decision, the Court rejected a number of arguments raised by the plaintiffs in an effort to show that they had standing. The plaintiffs first argued that, similar to trust law, their interests in the plan meant that any injuries to the plan were inherently injuries to the participants. The Court rejected this argument by distinguishing DB plans from private trusts or defined contribution retirement plans, where the amount that a participant or beneficiary may receive is not fixed and can depend upon the money spent and earned by the trust or plan. By contrast, the Court held that because a DB plan participant’s benefits are fixed and are not contingent upon how the plan is managed, the trust law analogy is inapplicable.
The plaintiffs next argued that they had standing as representatives of the plan, but the Court rejected this argument because, to have representational standing, the representative plaintiff(s) still must have suffered a concrete injury, which the Court had already held these plaintiffs had not. The Court further rejected any standing based upon an assignment because there had been no legal or contractual assignment of any claims held by the plan to these participant plaintiffs.
The plaintiffs also argued that they had standing based upon their express inclusion among the parties authorized to bring suit by ERISA §§ 502(a)(2) and (3). However, the Court rejected this claim because statutory and constitutional standing are different tests and both tests must be satisfied. As a result, the Court’s holding was that even though a participant has statutory standing under ERISA to bring suit, if the plaintiff does not meet the three requirements stated above for constitutional standing, then the complaint should be dismissed.
Finally, the plaintiffs argued that, without the ability of participants to bring lawsuits, there would be no meaningful regulation of DB plans. The Court rejected this argument as well, primarily focusing on the ways in which DB plans would continue to be monitored and regulated, including by the U.S. Department of Labor.
Although the Thole case arose in the context of a single-employer plan, there is nothing about its holding that appears to be limited to such plans. As a result, we anticipate that courts may extend its significant restriction on participant-driven lawsuits for fiduciary breaches based on investment decisions to multiemployer DB plans as well. Thus, the likely outcome of the case is a reduced risk of fiduciary breach litigation for all DB plan trustees.
We note, however, that the plan in this case was adequately funded, and the Court left open the possibility that a participant might have constitutional standing if they can plausibly claim that the alleged mismanagement of the plan substantially increased the risk that the plan would be unable to pay future pension benefits.
Please contact Slevin & Hart for more information about this case and how it could affect your potential liability as an ERISA fiduciary.
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