In a 5-4 decision in Thole v. U.S. Bank N.A., the Supreme Court found that participants in a defined benefit pension plan lacked Article III standing to sue under the Employee Retirement Income Security Act of 1974 (ERISA) for alleged mismanagement of that plan, finding the plaintiffs suffered no concrete injury that could be redressed by the lawsuit.

Plaintiffs were former employees of U.S. Bank who, having retired as vested participants in its defined benefit plan, had already begun receiving fixed monthly payments.  They filed a class action lawsuit under ERISA in 2013 against the plan sponsor and numerous plan fiduciaries, alleging that defendants breached their fiduciary duties by investing plan funds in the investment managers’ mutual funds, paying excessive management fees, and making imprudent investment decisions that led to $750 million in losses to the plan.  The trial court dismissed the lawsuit after the plan, which was underfunded when the suit was filed, became overfunded when the company contributed $311 million to bring the plan into compliance, which the court found mooted plaintiffs’ claims.  The Eighth Circuit affirmed on the basis that the overfunded nature of the plan removed plaintiffs’ statutory standing under ERISA to sue.

In granting plaintiffs’ cert petition, the Supreme Court directed the parties to brief the question of whether participants had Article III standing, and that question was the sole focus of the majority opinion, written by Justice Brett Kavanaugh.  The majority held that that plaintiffs lacked Article III standing, finding that they had “no concreate stake in this lawsuit,” because, as participants in a defined benefit plan, they had received all of the benefits they were due to this point and would continue to receive the same amount going forward, regardless of whether they won or lost the lawsuit.  The Court considered and rejected four arguments in support of standing.

First, the Court disagreed with the plaintiffs’ analogy that, like beneficiaries of a trust, they had an equitable or property interest in the plan.  Because the plaintiffs would receive the same fixed benefits regardless of how the plan was managed, they were unlike trust beneficiaries, who receive more or less money depending on how well a trust is managed.

Second, the Court determined plaintiffs did not have standing as representatives of the plan itself, because they had not suffered an injury-in-fact, and the plan had not legally or contractually assigned its claims to them.

Third, the Court rejected the plaintiffs’ assertion that ERISA Sections 502(a)(2) and (3) allowed them to sue for the restoration of plan losses and other equitable relief. The majority reasoned that the existence of a statutory cause of action did not remove the basic requirement that plaintiffs must have an injury-in-fact to have standing to sue.

Fourth, the Court determined that plan fiduciary conduct would be effectively regulated without permitting standing in these circumstances. Defined benefit plan sponsors are incentivized to properly manage the plan because they could benefit from plan surpluses and be liable for benefits the plan could not pay. Further, the Department of Labor is motivated to pursue fiduciary misconduct to avoid the burden of having to cover the shortfall for underfunded plans.

Finally, addressing an argument made in amicus briefs that standing exists based on conduct that “substantially increased the risk that the plan and the employer would fail and be unable to pay the participant’s future pension benefits,” the Court found that plaintiffs had not plausibly alleged this to be true in this particular case.  In a footnote, the majority further explained that, even if a defined benefit plan “was mismanaged into plan termination, the federal PBGC [Pension Benefit Guaranty Corporation] by law acts as a backstop and covers the vested pension benefits up to a certain amount and often in full.”

In the dissent, Justice Sonia Sotomayor disagreed with the majority’s finding that defined benefit plans are more like contracts than trusts.  She argued that the plaintiffs had alleged sufficiently concrete injuries to themselves in the form of a $750 million loss in plan assets held in trust for their benefit.  Plaintiffs were also injured by the defendants’ failure to prudently manage the plan, a duty they were owed independent of any monetary consequences.  She further asserted that the plaintiffs should be allowed to sue on behalf of the plan, as ERISA Sections 502(a)(2) and (3) authorize participants to sue “in a representative capacity on behalf of the plan as a whole,” and that preventing them from doing so left no one to represent the plan’s interests other than the fiduciaries who are themselves accused of mismanaging the plan.  Justice Sotomayor further criticized the majority’s assertion that the plaintiffs have not been injured because they will continue to receive the full amount due them under plan.  According to Justice Sotomayor, the alleged mismanagement of the plan may leave the plan unable to pay benefits in the future and participants should not be forced to wait until a plan “is on the brink of financial ruin” before doing anything to prevent this outcome.

The Thole decision will likely make it more difficult for participants in defined benefit plans to bring ERISA fiduciary breach actions, as they will have to plausibly allege that a breach substantially increased the risk that their future benefits will not paid.  Given Justice Kavanaugh’s footnote that the PBGC is available as a backstop for underfunded plans, this could prove very difficult.