United States Supreme Court Holds Participants in ERISA Defined Benefit Plans Lack Standing to Sue for Breach of Fiduciary Duties

June 5, 2020

On June 1, 2020, the United States Supreme Court held that ERISA defined benefit pension plan participants do not have Article III standing to sue their plan for breach of fiduciary duties unless they have actually lost benefits because of the breach. The Court’s opinion in Thole v. U.S. Bank, N.A., upholding a decision of the Eighth Circuit Court of Appeals, substantially raises the bar for plaintiffs asserting claims under ERISA against defined benefit plans. This ruling is a significant victory for defined benefit ERISA plans, and may have implications for other ERISA plans and class-action suits in general.

The two plaintiffs, retired participants in U.S. Bank’s defined benefit pension plan, filed a class-action complaint against the bank under the Employee Retirement Income Security Act (“ERISA”) for alleged violations of fiduciary duties. The allegations centered on claims that U.S. Bank’s investing choices resulted in plan losses of approximately $750 million. Significantly, however, the two plaintiffs continued to receive their monthly pension benefits. U.S. Bank argued, therefore, that the plaintiffs lacked standing to sue because they were not in fact injured by any alleged bad acts. The district court dismissed the plaintiffs’ claims on these grounds, and the Eighth Circuit affirmed.

In a split decision, the Supreme Court affirmed dismissal and held that participants in a defined benefits plan who continue to receive their monthly benefits have no standing to sue their plan under ERISA. In short, the plaintiffs had no standing because winning or losing the suit would not change the plaintiffs’ monthly pension benefits. The plaintiffs argued that they had standing to sue by analogizing to trust law, claiming that plan participants possess an equitable or property interest in the plan, meaning that injuries to the plan likewise injure the plaintiffs. The majority opinion rejected this argument, explaining that participants in a defined benefit plan have a contractual relationship with the plan whereby participants receive fixed benefits that will not change, regardless of how well or poorly the plan is managed. The Court’s opinion did, however, leave open the possibility that mismanagement of a plan could be so egregious that it substantially increased the risk that the plan would go bankrupt, thus creating a cognizable injury for plan participants.

In a concurring opinion joined by Justice Gorsuch, Justice Thomas questioned the use of any analogy to trust law in deciding cases under ERISA. Traditionally, the Court has cited the common law of trusts as the starting point for interpreting ERISA. The concurring opinion called for the Court to cease using trust law in analyzing fiduciary duties, which arise from the ERISA statute and not the common law. Further, ERISA’s definition of fiduciary departs from the common law definition. Thus, according to Justice Thomas, claims brought under ERISA should be analyzed in light of the statutory language only. The concurrence also asserted that fiduciary duties created by ERISA are owed to the plan, not plan participants.

The most immediate impact of the Thole decision is felt by defined benefit plans. Now, participants in these plans generally cannot sue for breach of fiduciary duty unless they are not receiving their promised monthly benefits. Although the opinion allowed for claims that substantially increased the risk of the plan failing, the Court offered no guidance on what constitutes a substantial risk. Further, the impact of the Court’s decision is likely to be felt in other areas of the law. For example, for participants challenging the administration of health benefits, claims of class-wide breaches of fiduciary duties may not suffice without allegations of class-wide deprivation of benefits. Indeed, defendants in class-action suits generally seeking to vindicate non-monetary rights with no actual pecuniary loss now have additional support to argue against standing or certification. Finally, the concurring opinion’s outright rejection of analogizing to trust law in ERISA cases may have broad implications for all ERISA litigation. The nature of a plan’s fiduciary duties, particularly in light of Justice Thomas’ opinion that fiduciary duties are owed to the plan not to participants, may become a greater part of future ERISA litigation.

Lewis Rice labor & employment attorneys represent management in employment-related litigation in federal and state courts in a variety of matters, including defending against class actions, and our pension and employee benefits attorneys are knowledgeable in all aspects of employee benefits and executive compensation matters. If you have questions about this case or need assistance in this area, contact an attorney above.

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