Beneficiaries cannot sue fully funded pension plans for losing money on investments, the Supreme Court ruled Monday. The decision settled a seven-year Employee Retirement Income Security Act (ERISA) case for defined benefit plans.
Because plan participants James Thole and Sherry Smith would receive the same defined benefit payment from US Bancorp Pension Plan regardless of the fund’s value or its investment outcomes, the plaintiffs lacked standing in their case, the ruling said.
In other words, the plan beneficiaries had no “concrete stake” in the Thole v. US Bank lawsuit, according to a 5-4 majority opinion led by Justice Brett Kavanaugh. Courts have ruled in the past that pension funds must cause harm to beneficiaries, meaning they can’t pay their obligations, in order to violate their fiduciary duties.
But in a dissenting opinion, Justice Sonia Sotomayor wrote that the nation’s highest court had erroneously determined that pensioners cannot bring an ERISA suit against pension mismanagement unless the plans are on the brink of collapse.
She wrote, “the Constitution prevents millions of pensioners from enforcing their rights to prudent and loyal management of their retirement trusts.” And noted, “The court does not explain how the pension could satisfy its monthly obligation if, as petitioners allege, the plan fiduciaries drain the pool from which petitioners’ fixed income streams flow.”
When they first filed their complaint in 2013, Thole and Sherry argued that the US Bancorp Pension Plan violated its fiduciary duty when it invested all the fund’s assets in high-risk equities, which lost the fund $748 million during the Great Recession and caused its funded ratio to drop to about 84%.
Soon afterward, however, US Bancorp contributed $339 million to fully fund the plan again at 115%, with $86 billion in assets under management.
Prior to making its way to the Supreme Court, the lawsuit was picked over in a lower court and the 8th US Circuit Court of Appeals, which determined that the now-stable pension plan negated any losses. The Supreme Court didn’t accept this reasoning as sufficient to toss out the lawsuit until Monday.
“The decision, though a narrow one, seems likely to forestall any number of potential fiduciary breach suits, if only because it limits the circumstances under which workers and retirees can sue,” according to the American Society of Pension Professionals and Actuaries.