The U.S. Supreme Court ruled 5–4 in favor of dismissing a lawsuit against fiduciaries of a defined-benefit retirement plan.
The lawsuit was brought against a retirement plan managed by U.S. Bancorp under the Employee Retirement Income Security Act of 1974 (ERISA). Key to the ruling was an opinion that plaintiffs lacked standing. The plaintiffs are retired participants in the pension plan. They sought repayment of $750 million to the trust and removal of the management team on the allegation that financial mismanagement and malfeasance led to larger than necessary losses to the plan during the Great Recession, breaching federal fiduciary responsibility.
Writing the opinion of the court, Justice Kavanaugh dismissed the plaintiffs’ case on four major points. Those points stemmed from the argument that because beneficiaries of a defined-benefit plan receive the same fixed payment regardless of the plan’s value or its fiduciaries’ good or bad investment decisions, they are incapable of claiming injury against the plan.
The first point of the majority opinion was that participants in a defined-benefit plan are not liable to a loss of benefits as participants in a private trust or defined-contribution plan are due to a lack of equitable or property interest in the plan, separating pensions as contracts more so than trusts. Second, plaintiffs cannot privately represent injury to the plan since they experienced no real injury. Third, ERISA affords the right to sue fiduciaries but that right does not equate to evidence of injury. Fourth, defined-benefit plans are already subject to federal regulation and monitoring, meaning the plaintiffs have other ways of removing fiduciaries than through a lawsuit under ERISA. Furthermore, rational companies stand to benefit from well-run retirement plans or be penalized for their mismanagement, which naturally incentivizes them to root out fiduciary misconduct.
In a concurring opinion, Justice Thomas said a ruling from the U.S. Supreme Court would needlessly complicate the legal precedent informing the separation of defined-benefit plans from private trusts and defined-contribution plans. ERISA’s precedent is for the public protection of the defined-benefit plan itself, not the private protection of participants’ benefits.
In the dissenting opinion, Justice Sotomayor affirmed hearing the plaintiffs’ case on the basis that ERISA is established to precisely validate fiduciaries’ responsibility to beneficiaries of defined-benefit plans, seeing as employees paid into the plan with their wages. Further, ERISA protects defined-benefit plans as established trusts, which is encapsulated by the legal fiduciary responsibility governing them, no different than that of governing a private trust or a defined-contribution plan.
Source: Thole v. U.S. Bank N. A. 590 U.S. (June 2020).
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