Back in June, the U.S. Supreme Court agreed to take up the appeal of a case known as Thole v. U.S. Bank.
The underlying lawsuit emerged after retirees alleged that U.S. Bank breached its fiduciary duties by engaging in prohibited transactions under the Employee Retirement Income Security Act (ERISA), which the retirees say in turn caused considerable losses to their defined benefit (DB) pension plan.
Distinguishing this case from others that have challenged the fiduciary practices of pension plan sponsors is the key fact that the pension plan in question is not facing financial stress, let alone the possibility of imminent insolvency. This situation raises the fundamental issue of whether these retirees can prove the type of concrete harms occurred which are necessary for establishing standing under U.S. laws, including ERISA.
Fast forward to late April and the retirement industry is still eagerly awaiting the high court’s verdict. Oral arguments in the case, it should be noted, occurred in mid-January, before the coronavirus pandemic forced the court to shift its operations to be fully remote. The Supreme Court continues to operate, however, and so it stands to reason that its decision in Thole v. U.S. Bank will soon emerge.
The Legal Issues
In their Supreme Court appeal, the retirees say their case presents two independent, substantial legal issues that have divided the courts of appeals regarding when an ERISA plan participant may invoke the remedies Congress explicitly authorized to police fiduciary misconduct and protect federally guaranteed benefits. They explain how alleged fiduciary breaches caused $750 million in losses to their pension plan and why they feel injunctive relief is appropriate under 29 U.S.C. 1132(a)(3) and restoration of the plan’s losses under 29 U.S.C. 1132(a)(2).
As one of the lead plaintiffs’ attorneys in the case, Karen Handorf, partner at Cohen Milstein and chair of the firm’s employee benefits and ERISA practice group, says she is gratified that the Supreme Court has taken up this matter. In previous conversations with PLANADVISER, she has emphasized her belief that the case will 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. U.S. Bank has declined to comment on the matter, noting it is the firm’s policy not to publicly discuss active litigation, but its positions are clearly argued across hundreds of pages of case documents.
The case is further distinguished by the fact that the U.S. solicitor general has filed multiple “friend of the court” briefs at the behest of the Supreme Court, arguing that 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.
In the federal government’s brief, U.S. Solicitor General Noel J. Francisco points out that under a well-established principle of trust law, a beneficiary may bring such a suit when the trustee is unable or unwilling to do so. ERISA expressly incorporates that principle, assigning to beneficiaries the right to bring such suits.
“Because a defined benefit pension plan suffers a cognizable injury when a fiduciary breach reduces plan assets—whether or not the plan is overfunded—it follows that a plan beneficiary has standing to bring suit to seek recompense for that injury,” he argues.
He adds that such suits are all the more important under ERISA than under traditional trust law because ERISA expands the universe of people subject to fiduciary duties, making it more likely that a trustee will hold interests adverse to the plan and thus be unwilling or unable to bring suit on behalf of the plan. Francisco also points out that, traditionally, courts would entertain suits by trust beneficiaries alleging fiduciary breach with no further inquiry into whether the breach caused any harm other than the breach itself. By analogy, an ERISA beneficiary likewise may maintain a suit for fiduciary breach without demonstrating additional injury beyond the breach. “ERISA expressly incorporates that principle in Section 502(a), bolstering the historical case for standing with congressional judgment,” the brief says.
Showing the potential importance of the case, numerous other “amicus curiae” briefs have been filed by the likes of the New England Legal Foundation, the Washington Legal Foundation, the Chamber of Commerce of the United States of America, the American Benefits Council, the AARP and the ERISA Industry Committee. These are all published on the SCOTUS Blog webpage dedicated to the case.
Some of the briefs focus on more technical issues without picking a side, but many back the arguments of the plaintiffs. These briefs generally agree that this case has far-reaching implications for working and retired Americans. They note how multiple circuit courts, including the 8th Circuit in this case, have wrongly denied participants in defined benefit plans their right to hold fiduciaries accountable for even the most egregious misconduct.
“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 says. “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.”
Getting a bit technical, Handorf suggests the case, depending on how the ruling is structured, may help to clarify what she sees as some confusion that exists in terms of how pension plan participants can establish two different types of standing—ERISA statutory standing and Article III standing under the U.S. Constitution. If the Supreme Court ruling clarified the Article III standing, she says, the case could take on even broader implications well beyond the retirement marketplace. However, she expects the court can and will rule narrowly to avoid creating sweeping change to the way claims can be brought based on the Constitution.