Can a participant in a defined benefit plan sue the plan’s fiduciaries under ERISA without first showing an individual financial loss or an imminent risk of such harm? The Supreme Court of the United States recently decided the question in the negative, holding a participant must have “standing” to bring suit. That means the participant must show that he or she suffered an actual injury or have some concrete stake in the matter.
In Thole v. U. S. Bank N.A, 140 S. Ct. 1615, 207 L.Ed.2d 85 (2020), two retired participants in the U.S. Bancorp Pension Plan brought suit against the Plan’s fiduciary’s to recover losses suffered through poor investment decisions. During the Great Recession, the Plan lost $1.1 billion dollars; and according to the Court “allegedly $748 million more than a properly managed plan would have lost.” This caused the Plan’s funding status to drop from being overfunded to being 84% funded. The participants filed the suit to recover the financial losses (i.e., $748 million), to replace the current fiduciaries, and to receive attorney’s fees incurred in prosecuting the action. In response to the lawsuit, the Plan’s trustees returned approximately $311 million to the Plan.
Ultimately, the Thole Court held in a 5-4 decision that the participants lacked standing to bring the lawsuit. Despite the losses suffered by the Plan, there was no indication that the alleged violations jeopardized the Plan’s ability to pay benefits going forward. Moreover, the Thole Court pointed out that (1) the Plaintiffs continued to receive their monthly benefit from the Plan, (2) the monthly amount had not changed since benefits commenced, and (3) the Pension Benefit Guaranty Corporation (“PBGC”) serves as a backstop to continue payments if the Plan ever became insolvent.
“Thole and Smith have received all their monthly benefit payments so far, and the outcome of this suit would not affect their future benefit payments. If Thole and Smith were to lose this lawsuit, they would still receive the exact same monthly benefits that they are already slated to receive, not a penny less. If Thole and Smith were to win this lawsuit, they would still receive the exact same monthly benefits that they are already slated to receive, not a penny more. The plaintiffs therefore have no concrete stake in this lawsuit.”
In other words, the Plaintiffs were unable to show that they were personally harmed because of the actions alleged in their complaint. As a result, the Court dismissed the lawsuit.
Takeaway
The Thole decision is welcome news for fiduciaries of defined benefit plans. As we seen in 2008 and 2020, rapid market swings can have a dramatic impact on a defined benefit plan’s funding status. The Court made it clear that mere investment losses suffered by a defined benefit plan was not enough to bring suit. By tying “standing” to a concrete injury, the Thole Court limits the ability of a participant in a defined benefit plan to bring a lawsuit against the plan’s fiduciaries.
Importantly, the Thole decision probably would have been different if the retirement plan were a defined contribution plan, such as a 401(k) or profit-sharing plan. In a defined-contribution plan, retirement benefits are typically tied to the value of the participant’s account. That means many of the investment decisions made by plan fiduciaries could directly impact the amount a participant receives at retirement. Under this setting, the plaintiffs would have been able to show a direct harm (i.e., a decrease in their account balance) and the lawsuit could have proceeded.