Split Supreme Court Rules in Thole v. U.S. Bank; Major Implications for Pensions

The case is expected to help determine whether the millions of Americans whose pensions are held in defined benefit plans have the right to sue the fiduciaries of their plans for mismanaging assets, even when their own retirement benefit has not suffered.

The Supreme Court of the United States has ruled in the complex case known as Thole v. U.S. Bank, which asks some intricate but fundamentally important questions about what it takes for pension plan participants to establish standing in the context of fiduciary breach lawsuits.

In short, the Supreme Court’s conservative majority has sided with the two lower courts that have ruled in the case, joining them in rejecting the plaintiffs’ calls to revive the fiduciary breach lawsuit that cites the Employee Retirement Income Security Act (ERISA). With the new ruling, all three levels of the federal courts have sided with U.S. Bank’s argument that the plaintiffs in the case have not suffered concrete harms of the type required to establish standing under U.S. law.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

Put in simple terms, the courts have determined that pension plan participants who have not seen their own benefit payments reduced or otherwise altered cannot sue their employer on behalf of the whole pension plan for failing to live up to ERISA’s fiduciary duties. Importantly, the Supreme Court ruling draws a direct distinction between defined benefit (DB) pension plans and defined contribution (DC) plans in such matters, noting that DC plan participants can prove standing in fiduciary breach lawsuits far more often because their benefit value directly fluctuates along with the financial condition of the plan, whereas it is the employer that carries the risk in pension plans.

Justice Brett Kavanaugh delivered the formal opinion of the court, and was joined by Justices Clarence Thomas, Samuel Alito and Neil Gorsuch. Thomas filed a concurrent opinion, in which Gorsuch joined. On the other hand, Justice Sonia Sotomayor filed a dissenting opinion, which Justices Ruth Bader Ginsburg, Stephen Breyer and Elena Kagan joined.

Like the lower court rulings that rejected the plaintiffs’ claims, the high court’s majority ruling states that none of the plaintiffs’ arguments suffices to establish Article III standing. In an explanatory syllabus attached to the ruling, the ruling majority states that the two lead plaintiffs “have no concrete stake in the lawsuit,” and so they lack Article III standing.

“Win or lose, they would still receive the exact same monthly benefits they are already entitled to receive,” the summary syllabus states. “None of the plaintiffs’ arguments suffices to establish Article III standing. The plaintiffs rely on a trust analogy in arguing that an ERISA participant has an equitable or property interest in the plan and that injuries to the plan are therefore injuries to the participants. But participants in a defined benefit plan are not similarly situated to the beneficiaries of a private trust or to participants in a defined contribution plan, and they possess no equitable or property interest in the plan.”

The majority opinion relies on the fact that the plaintiffs “cannot assert representative standing based on injuries to the plan where they themselves have not suffered an injury in fact or been legally or contractually appointed to represent the plan.” Furthermore, the majority opinion emphasizes that ERISA’s affording to all participants—including defined benefit plan participants—a cause of action to sue “does not in itself satisfy the injury-in-fact requirement.”

The crux of the ruling is that Article III standing requires a concrete injury even in the context of a statutory violation.

“The plaintiffs contend that meaningful regulation of plan fiduciaries is possible only if they may sue to target perceived fiduciary misconduct,” the syllabus notes. “But this court has long rejected that argument for Article III standing, see Valley Forge Christian College v. Americans United for Separation of Church and State Inc. Defined benefit plans are regulated and monitored in multiple ways. The plaintiffs’ amici assert that defined benefit plan participants have standing to sue if the plan’s mismanagement was so egregious that it substantially increased the risk that the plan and the employer would fail and be unable to pay the participants’ future benefits. The plaintiffs do not assert that theory of standing here, nor did their complaint allege that level of mismanagement.”

Previously discussing the case with PLANADVISER, Karen Handorf, partner at Cohen Milstein and the lead attorney for the plaintiffs, said a ruling against her clients would represent a significant blow to the rights of individual pensioners under ERISA.

“Federal courts have taken this matter up in a few different contexts and, at this stage, a number of circuit courts have said you don’t, generally speaking, have standing to sue an adequately funded pension plan for harming its participants,” Handorf said. “To me, that’s a really strange and unfortunate stance to take, because it essentially wipes out a big portion of ERISA, which was written to give people the right to sue plan fiduciaries for breaches of their fiduciary duty and to prevent prohibited transactions. The whole idea that the funding level of the plan somehow means fiduciary breaches can’t occur is hard to grasp, because we all know that the funding level of a plan can change quite quickly, depending on the markets and everything else.”

Notably, these are some of the same arguments included in the dissenting opinion penned by Justice Sotomayor. Echoing multiple “friend of the court” briefs field by various parties, including the U.S. Solicitor General, the dissenting opinion states that the current funded status of a defined benefit plan is not a proper measure for whether the participants have a right to sue for breaches of fiduciary duties and prohibited transactions under ERISA.

“Petitioners have an interest in their retirement plan’s financial integrity, exactly like private trust beneficiaries have in protecting their trust,” the dissenting opinion states. “By alleging a $750 million injury to that interest, petitioners have established their standing. … Second, petitioners have standing because a breach of fiduciary duty is a cognizable injury, regardless whether that breach caused financial harm or increased a risk of nonpayment. … Last, petitioners have standing to sue on their retirement plan’s behalf. Even if petitioners had no suable interest in their plan’s financial integrity or its competent supervision, the plan itself would. There is no disputing at this stage that respondents’ mismanagement caused the plan approximately $750 million in losses still not fully reimbursed. … The plan thus would have standing to sue under either theory discussed above.”

Asked about what an adverse ruling would mean for her clients and pensioners at large, Handorf said the results could be dire.

“What if a plan becomes underfunded, giving you standing to sue, but the alleged breach of the fiduciary duty happened longer ago that than the relevant statute of limitations? Are you just out of luck in that case?” Handorf asked. “If this is cemented as the standard it will mean that plan fiduciaries can basically get away with anything, so long as they have a well-funded plan during the period that the statute of limitations is running.”

Responding to such points, the majority opinion states that ERISA “expressly authorizes the Department of Labor [DOL] to enforce ERISA’s fiduciary obligations. … And the Department of Labor has a substantial motive to aggressively pursue fiduciary misconduct, particularly to avoid the financial burden of failed defined benefit plans being back-loaded onto the federal government.”

A number of ERISA attorneys have already provided some early legal analysis of the decision, including Mayer Brown partner Brian Netter, a co-leader of the firm’s ERISA litigation practice.

“In recent years, courts have been swamped by lawsuits alleging that retirement plan fiduciaries breached their duties,” Netter says. “It’s one thing when the plaintiffs filing the lawsuit have a stake in the outcome; but lawsuits by disinterested plaintiffs don’t belong in federal court. Today, the Supreme Court confirmed that the basic rules of Article III standing apply in the context of ERISA lawsuits, too.”

Adam Cohen, partner at Eversheds Sutherland and a member of their tax practice group, says the ruling limits the ability of participants to sue defined benefit plan fiduciaries before their benefit amount is directly impacted. However, he is unsure whether this means participants now will have less recourse in practical terms.

“The investment decisions made by defined benefit plan fiduciaries remain subject to suit by the Department of Labor, and of course the fiduciaries continue to be bound by the strict prudence, diversification, and other requirements of ERISA,” Cohen says. “The ruling leaves the door open a small crack to participants who can plausibly allege that the mismanagement of the plan substantially increased the risk that future benefits would not be paid. This appears to be a high bar, but for employers with chronically underfunded plans, it could be a relevant consideration.”

Retirement Industry People Moves

TRA adds newest regional sales consultant; Mercer selects responsible investment leaders; Newport acquires TPA business at Huntington National Bank; and more.

Art by Subin Yang

TRA Adds Newest Regional Sales Consultant

The Retirement Advantage Inc. (TRA) has hired Pam Mayer as its latest regional sales consultant, covering a territory that includes Arizona, South California, Hawaii, New Mexico and Nevada. Mayer will report to her predecessor, Darin Erdmann, TRA’s national sales manager.

“Pam brings great energy and career experience in retirement plan solutions,” Erdmann says. “She has a great reputation for service, and we’re excited to welcome her to the TRA team.”

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

Mayer’s main role at TRA will be expanding the company’s client base in the western region by designing customized retirement plan solutions that reduce taxable income for business owners, as well as increasing engagement of financial advisers, accountants and other professionals.

Mayer has worked in the financial services and retirement plan industry for over 25 years. For the past several years, she has held executive roles as a vice president with the ERISA Advisory Group. She has also held sales and service roles with VOYA and TransAmerica.

“TRA is an organization that continues to raise the bar in the retirement plan industry,” Mayer says. “I’m thrilled to join an accomplished team and company with a rich history of innovation in the industry. I am passionate about providing the highest quality products and the ultimate in service to our clients and proud to be a part of TRA’s continued bright future.”

“With her expertise in retirement plan sales strategy, adviser practice management, marketing and communications, Pam will enhance the service and support we’re able to provide to our advisers in the region,” Erdmann says. “We are delighted to have her join our team.”

Mayer is a graduate of Ursinus College, has her certified employee benefit specialist (CEBS) and cash balance consultant (CBC) designations and is a certified continuing education instructor.

Mercer Selects Responsible Investment Leaders

Mercer has appointed David Fanger and Monika Freyman as the company’s new heads of Responsible Investment for the United States and Canada, respectively. 

Fanger brings over 20 years of financial services experience to the role, which includes consulting organizations on financial strategy, investment and retirement solutions, mergers and acquisitions (M&As) and risk management. Prior to joining Mercer, he spent over 10 years with Pacific Life, including roles where he was responsible for merger and acquisition valuations, and he most recently was the CEO of sustainable fintech company Swell Investing. He previously worked at Mercer, where he was responsible for advising Fortune 500 pension plan sponsors on funding, plan design and asset-liability management strategies. He is a Chartered Financial Analyst (CFA) charterholder, a fellow of the Society of Actuaries, a member of the American Academy of Actuaries and holds a master’s degree from UCLA Anderson School of Management and a bachelor’s degree in actuarial science from Ball State University.  

He is based in Los Angeles and reports to Helga Birgden, partner and global business leader for Responsible Investment.

Freyman brings 20 years of investment and sustainability experience to the role. Prior to joining Mercer, she spent 10 years with Boston-based advocacy group Ceres. She launched the Ceres Investor Water Hub and was lead architect of the Investor Water Toolkit. Freyman also developed responsible investment projects with Harvard’s Kennedy School and Trillium Asset Management, in addition to holding previous positions in emerging market fixed income and equities. 

Freyman is on the Board of Regents of the CFA Institute’s Global Seminar and is a contributing author to the CFA’s Enterprising Investor series. She is a CFA charterholder, and holds a bachelor’s degree of commerce in finance from the University of British Columbia, a master’s degree from Loyola University Chicago and is a National Science Foundation award winner.

A part of Mercer’s Wealth business in Canada, she is based in Vancouver, British Columbia, and reports to Birgden.

Newport Acquires TPA Business at Huntington National Bank

Newport has entered into an agreement with Huntington National Bank to assume its retirement recordkeeping and administration business. Huntington will continue to serve as plan adviser for its retirement plan services clients.

Upon closing, and subject to customary conditions, the business—which currently provides recordkeeping and administration services to more than 600 plans with approximately $1.7 billion of assets under administration—will operate as part of Newport. The transaction includes Huntington’s third-party administration (TPA) business, and a team of Huntington employees, who provide these services, will join Newport.

“With Huntington, we have a partner who shares our values and our commitment to providing the best possible support to clients and their retirement plan participants,” says Newport chief executive officer Greg Tschider. “We look forward to introducing our company to Huntington’s clients and welcoming our newest employees to the Newport team.” 

Eagle Asset Management Appoints Portfolio Managers

Eagle Asset Management has promoted two executives to enhance its Small Cap Core Strategy and SMID Cap Core Strategy investment teams. 

Jeffrey Reda, CFA, has been appointed portfolio manager on the Small Cap Core Strategy, effective May 1. Having joined Eagle in 2010, Reda has more than 18 years of investment experience and was previously a senior research analyst on the Core Team, covering industrials and energy. 

Doug Fisher has been promoted to portfolio manager on the Small/Mid Cap Core Strategy, also effective May 1. Fisher has 27 years of investment experience and joined the firm in 2015. He has served as portfolio manager of the Micro Cap Core Strategy and as a senior research analyst for the Core Team, covering the health care sector. 

Both Fisher and Reda report to managing director and portfolio manager Todd McCallister, CFA. He and portfolio manager Scott Renner continue their current roles on both teams.

“Jeff and Doug each have made significant contributions to the Core Team, and their promotions to portfolio manager follow Eagle’s tradition of rewarding excellence,” says Edward Rick, head of Investments of Eagle Asset Management and executive vice president of Carillon Tower Advisers. “The wealth of investment experience that both bring helps us continue successfully identifying smaller companies with potential for our clients, as well as strengthen our already robust portfolio management team.”

OneAmerica Hires Relationship Senior Director

OneAmerica has hired industry veteran Hank Zoller as relationship senior director.

Zoller reports to Alan Blaskowski, Retirement Services relationship management leader, in developing a program and strategy to accommodate more business in that segment.

“Hank’s proven track record in working with retirement plan advisers and their clients of this size strengthens our large market approach, and his skills complement our commitment to high-touch service for large, complex relationships,” Blaskowski says. “We’re combining what we do well—relationships—with what Hank does well, using his skills and significant experience in client and retirement plan adviser engagement to win new business.”

Prior to joining OneAmerica, Zoller worked with retirement plan clients during nearly nine years with Schwab Retirement Plan Services, where he most recently served as vice president of advice, education services and communications consulting. He previously worked 14 years for Bank of America Merrill Lynch, overseeing consultant relations.

Zoller intends to replicate his formula for implementing a client relationship management group and platform. “It’s a thrill to be joining OneAmerica and build on the qualities that are catalysts in their momentum in working with large market consultants and retirement plan sponsors,” he says. “OneAmerica has excellent leadership, the right priorities, an award-winning client focus and a reputation for delivering outstanding participant and sponsor outcomes.”

ASI Appoints Former Wealth Management Head to North American Distribution Lead

Aberdeen Standard Investments (ASI) has promoted Mickey Janvier to head of North American Distribution.

Janvier will manage all facets of distribution in North America and Canada and lead the North America Distribution team, reporting to global sales director Alex Hoctor-Duncan, with a second line of accountability to Chris Demetriou, CEO of the Americas. 

Janvier was previously head of wealth management business development for the Americas region. He is based in the Philadelphia office and has been with the company since 2011, joining from Brandywine Global, where he was a senior vice president for 12 years. Mickey received his undergraduate and master’s degrees from Drexel University’s LeBow College of Business.

 “Mickey has been at the forefront of our efforts to accelerate our ambition with key strategic intermediary distribution partners in recent years,” Demetriou says. “He has built a highly functioning team to cultivate strong client relationships and has demonstrated expertise across both the wealth management and institutional landscape.  We have ambitious growth plans for the region and it’s fantastic to have someone with Mickey’s knowledge of our business and the broad commercial marketplace in this position to help drive our strategy forward.”

«