Whether the 5-4 Supreme Court decision in Thole vs. U.S. Bank on June 1 is "good news" for employers and will limit lawsuits by defined benefit participants, as some commentators have forecast, remains to be seen. From the perspective of advising fiduciaries how to discharge their responsibilities and avoid litigation, however, what the majority opinion means in practice should not be overlooked.
Thole is a decision about standing. Writing for the majority, Justice Brett Kavanaugh said that the plaintiffs were retirees in a defined benefit pension plan who "had been paid all of their monthly pension benefits so far, and (who) are legally and contractually entitled to receive those same monthly payments for the rest of their lives." Plaintiffs nonetheless alleged that plan fiduciaries had been guilty of a number of breaches of duty. Pointing out that whether the plaintiffs won or lost their lawsuit they would not get one penny more or less, the majority ruled the plaintiffs had no concrete stake in the lawsuit. In so doing, the majority also noted that plaintiffs' attorneys seeking $31 million in fees have a stake in the lawsuit but that is insufficient to create a case or controversy where none exists on the merits. The record in the case also discloses that after litigation commenced, $311 million additional was contributed to the plan.
What if participants did not receive their monthly payments as due? What if an influx of contribution dollars is not made to stave off insolvency that plaintiffs allege occurred because of fiduciary breaches? The majority states that in such a situation, participants can pursue a lawsuit under ERISA Section 502(a)(1)(B) for benefits not paid. Moreover, the majority noted that the plaintiffs in Thole did not allege or argue that "mismanagement of the plan was so egregious that it substantially increased the risk that the plan and the employer would fail and be unable to pay the participants' future benefits," while also noting that a "bare allegation of plan underfunding does not itself demonstrate a substantially increased risk that the plan and the employer would both fail."
So, the question for later decisions is whether Thole is hinged to its unique facts. In the course of its opinion, the majority declared that defined benefit plan participants possess no equitable or property interest in the plan so they cannot assert representative standing based on injury to the plan; it is this statement on which some commentary is focused. It may be that a non-egregious alleged fiduciary breach not threatening plan viability will no longer be the subject of private litigation where the plan is paying benefits as due. For participants in defined benefit plans that are in financial distress or who claim egregious breaches producing substantial viability threat, however, Thole may not be the end of the story. And for fiduciaries of those other plans, it will be important to understand the contours of what Thole does not address.
In responding to the argument that not finding standing on the facts in Thole would mean that regulation of fiduciary misdeeds would suffer, the majority emphasized that defined benefit plans are regulated and monitored in multiple ways: Employers possess strong incentives to root out fiduciary misconduct because they are on the hook for plan shortfalls; the Labor Department has a substantial motive to aggressively pursue fiduciary misconduct; and "on top of all that" fiduciaries can sue other fiduciaries and the plan fiduciaries in this case would have good reason to sue if they determined that plan assets were being used as a "personal piggybank." In short, the majority said, ERISA fiduciaries who manage defined benefit plans "face a regulatory phalanx."
This statement by the majority could compel the Labor Department to have an even greater role in policing defined benefit plans and encourage plan sponsor employer and trustee fiduciaries to establish robust self-policing oversight compliance programs.
In addition to the regulatory phalanx that fiduciaries face, the decision is designed so that fiduciaries have to be constantly vigilant. In the event that funding deteriorates so benefits cannot be paid when due, a plaintiff would have standing to start a new lawsuit and the non-vigilant fiduciary would be back in court again. The only way to ensure that this does not occur is to make sure that funding continues to be full on an ongoing basis. Thus, the Supreme Court decision recognizes that ERISA's statutory purpose, and the reason for its enactment, is to make sure that benefits are paid to participants.
Jeffrey D. Mamorsky and Jonathan L. Sulds are co-chairmen of the labor and employment practice's ERISA and employee benefits litigation group at Greenberg Traurig LLP, New York. This content represents the views of the authors. It was submitted and edited under P&I guidelines but is not a product of P&I's editorial team.
