The Supreme Court accepted an ERISA case Friday that will determine whether pension plan participants can sue plan fiduciaries for mismanagement if they have not experienced financial harm.
Some participants in the U.S. Bancorp Pension Plan filed suit in 2013 claiming that plan fiduciaries engaged in misconduct, including failing to diversify investments, that caused $750 million in losses.
When the participants questioned the investments involved, U.S. Bank replaced those amounts, causing the plan to be overfunded.
The case, Thole vs. U.S. Bank, was dismissed after a lower court and the 8th U.S. Circuit Court of Appeals said participants did not have statutory standing to assert breach of fiduciary because the participants had not suffered any individual financial harm and there were enough plan assets to cover benefits.
In June 2018, the plaintiffs asked the Supreme Court to review the 8th Circuit's decision , and the U.S. solicitor general's office urged taking the case on the question of whether plaintiffs have standing to sue without a monetary loss and to resolve disagreement on that question in lower courts.
The Supreme Court petition claims the plan had $2.8 billion in assets as of 2007, but that changed when plan fiduciaries ignored their investment consultants and invested all plan assets in high-risk equities, including 40% of plan assets in a proprietary mutual fund, in violation of prohibited-transaction rules. The market crash of 2008 caused the plan to lose $1.1 billion, which the plaintiffs claim was $748 million more than a diversified portfolio would have lost, and caused a once-overfunded plan to drop to 84% funded. The sponsor contributed $339 million, restoring the plan to its overfunded status, the petition said.
U.S. Bank's brief counters that the plan is 115.3% funded, with $86 billion in liquid assets to meet pension obligations "many times over."
The case has far-reaching implications for participants in defined benefit plans, said Michelle C. Yau, a partner at Cohen Milstein Sellers & Toll, co-counsel for the plaintiffs. "Plan participants should be able to hold fiduciaries accountable for reckless practices that put their retirement security at risk," Ms. Yau said.
Plaintiff co-counsel Peter K. Stris, founding partner of Stris & Maher, who will argue the case this fall, said courts have wrongly denied defined benefit plan participants the right to hold fiduciaries accountable "for even the most egregious misconduct" unless the plan was underfunded. "Not only is this unconscionable; it conflicts with the remedies Congress explicitly authorized and with centuries of precedent allowing trust beneficiaries to sue for fiduciary misconduct," Mr. Stris said in a statement.
In an amicus brief, the U.S. Chamber of Commerce warned that stopping uninjured plaintiffs from bringing suit is necessary to avoid "profligate and unconstitutional litigation" that could harm plan beneficiaries.