ERISA cases get starring roles in new Supreme Court term

After three quiet years with no major ERISA cases, the U.S. Supreme Court starts its 2019 term on Oct. 1 with three significant cases scheduled and more waiting in the wings.

Also this fall, the justices will tackle the constitutionality of Puerto Rico's federally appointed oversight board as it seeks to reform its public pension funds and restructure bondholder debt. Another case will revisit legal precedents on the SEC's ability to go after foreign entities or seek disgorgement of gains related to fraud.

The high court cases involving the Employee Retirement Income Security Act address very different issues — stock drop claims, determining actual knowledge of fiduciary breaches and potential losses even when a plan is overfunded.

"They all will have a huge impact on plan administration and the types of benefits and plan designs that employers choose to offer," said Aliya Robinson, senior vice president of retirement and compensation policy at the ERISA Industry Committee in Washington.

ERIC and other employee benefit groups including the American Benefits Council "are encouraging the Supreme Court to support the plan sponsors in these cases to ensure that employers can continue to offer retirement benefits without fear of unwarranted legal action," said Ms. Robinson.

On Nov. 6, the first ERISA case is sched-uled to be heard. Retirement Plans Committee of IBM et al. vs. Larry Jander et al. asks the Supreme Court to revisit its unanimous 2014 ruling in Fifth Third Bancorp et al. vs. Dudenhoeffer et al., which established guidelines for lower courts dealing with stock-drop complaints. Another aspect of the IBM case will decide whether ERISA plaintiffs can overcome a motion to dismiss when alleged costs of undisclosed fraud grow over time.

Lower courts ruled that IBM fiduciaries failed to protect retirement accounts when the company's stock fell after IBM tried to sell a business unit in 2014. That decision "reopens the door to lawyer-driven class actions that spring up after every stock drop," IBM plan officials said in their Supreme Court brief.

On Dec. 4, the Supreme Court will hear arguments in an ERISA breach lawsuit, Intel Corp. Investment Policy Committee et al. vs. Sulyma, which questions how much defined contribution sponsors are responsible for communicating investment lineup features, participants' responsibilities for understanding them and how much time they have to raise challenges. Managers of the Intel Corp. 401(k) plan and other Intel units hope to overturn a ruling by the 9th U.S. Circuit Court of Appeals that held the sponsor liable for fiduciary breaches because the participant lacked sufficient knowledge of the investments, partly because he did not look at documents Intel provided.

Still waiting for an argument date is a case questioning whether defined benefit participants can sue for fiduciary breaches even if a plan is overfunded and participants saw no monetary loss. The Supreme Court accepted the case, Thole vs. U.S. Bank, after it was dismissed by a lower court and the 8th U.S. Circuit Court of Appeals in St. Louis; both courts ruled against participants because they had not suffered individual financial harm.

Participants argued in their Supreme Court petition that U.S. Bancorp's $2.8 billion in pension assets as of 2007 dipped dramatically when plan fiduciaries invested heavily in high-risk equities, including a proprietary mutual fund. In its brief, U.S. Bancorp said it contributed $339 million to address plan underfunding and is now 115.3% funded.

Amicus briefs filed by participant advocate groups like AARP and the Pension Rights Center in Washington, as well as the U.S. solicitor general, believe the case is not about funding levels but giving participants standing to hold plan fiduciaries accountable for their actions.

A fourth ERISA issue — whether plaintiffs have the burden of proving that a plan loss resulted from a fidiciary breach, or whether sponsors bear the burden of disproving loss causation — also could be added to the calendar if the Supreme Court grants a petition in Putnam Investments LLC et al. vs. Brotherston et al. to settle a disagreement among several appeals courts. For now, the court has asked the solicitor general to weigh in before deciding.

The solicitor general's opinion could also convince the court to take a case filed by the Roman Catholic Archdiocese of San Juan, Puerto Rico, to decide if courts can force a religious organization's affiliates to face joint and several pension liability as a single entity. Plan participants in 2018 won a $4.7 million judgment against the Superintendence of Catholic Schools of the Archdioceses of San Juan, and the Puerto Rico Supreme Court authorized immediate seizure of church assets to pay it.

Puerto Rico's first Supreme Court appearance is Oct. 15, when the justices review an appeals court ruling that members of Puerto Rico's oversight board were not properly appointed. The Financial Oversight and Management Board was created by Congress in 2016 to help Puerto Rico achieve fiscal responsibility and gain access to the capital markets, in part by restructuring more than $70 billion in bondholder debt and making drastic reforms to depleted public pension funds.

Bondholders including Aurelius Capital Management LP and others seeking to dismiss Puerto Rico's bankruptcy actions successfully argued before the 1st U.S. Circuit Court of Appeals in Boston that oversight board members should have been appointed "with the advice and consent of the Senate."

Another case concerns the Securities and Exchange Commission's ability to get disgorgement as "equitable relief" following the June 2017 Supreme Court Kokesh vs. SEC decision that limited the agency to a five-year statute of limitations, costing investors $800 million in potential restitution, according to SEC estimates.

The SEC could also gain more authority to pursue securities fraud against foreign buyers when the conduct happens in the U.S. The case is being closely watched by institutional investors.

While the Supreme Court limited extraterritorial authority in its landmark 2010 Morrison decision, the U.S. Court of Appeals for the 10th Circuit in Denver said in SEC vs. Scoville that the Dodd-Frank Act "unmistakably" intended it to apply to this scenario.