SCOTUS Rules Participants in a Defined-Benefit Plan Do Not Have Standing to Sue Fiduciaries

On June 1, 2020, in a 5-4 decision, the U.S. Supreme Court held that two plan participants of a defined-benefit plan had no standing to sue their plan’s fiduciaries because, win or lose, the participants would receive the same monthly benefits and, thus, the participants did not meet the injury-in-fact requirement to establish Article III standing. Thole v. U.S. Bank N.A., 140 S.Ct.. 1615 (2020).

The plaintiffs, two plan participants in U.S. Bank’s defined-benefit retirement plan, alleged on behalf of a putative class that the plan’s fiduciaries had mismanaged the plan from 2007 to 2010 and, therefore, violated ERISA’s duties of loyalty and prudence. The plaintiffs requested that the fiduciaries repay the plan approximately $750 million in losses.

The plaintiffs advanced four arguments: first, they argued that as participants in an ERISA defined-benefit plan, they have an equitable or property interest in the plan; in other words, injuries to the plan are injuries to the plaintiffs as plan participants. Writing for the majority, Justice Kavanaugh rejected this argument on the grounds that the plaintiffs are not similarly situated to the beneficiaries of a private trust or to participants in a defined-contribution plan because the amount of benefits paid to a private trust beneficiary or defined-contribution plan participant is contingent on the management of the trust or plan. Justice Kavanaugh reasoned that a defined-benefit plan is more like a contract than a trust because the participants’ benefits are fixed and will not change regardless of the management of the plan.

Second, the plaintiffs argued that they had standing as representatives of the plan. The Court rejected this argument because, to represent the interests of the class, the plaintiffs needed to have a sufficiently concrete interest in the outcome of the dispute.

Third, the plaintiffs argued that ERISA grants them, as participants, a general cause of action to sue for the restoration of plan losses and other equitable relief. The Court also rejected this argument, with Justice Kavanaugh stating that such cause of action still requires the plaintiffs to meet the standing requirements, which they could not do.

Lastly, the plaintiffs argued that if defined-benefit plan participants may not sue plan fiduciaries for a potential breach of fiduciary duty, no one will meaningfully regulate plan fiduciaries. The Court rejected this argument, reasoning that the Court has long rejected this kind of argument and, either way, contributing employers and their shareholders as well as the Department of Labor are able and incentivized to bring suit against plan fiduciaries for alleged misconduct.

The Court suggests, however, that a plan participant such as the plaintiffs may have standing were they to allege that the fiduciaries’ mismanagement of the plan was so egregious that it substantially increased the risk that the plan would become underfunded to the point where the participants’ future benefits would be at risk. However, that scenario was not at issue in these plaintiffs’ claims.

The Court also appeared to limit its ruling to the defined-benefit plan context, strongly suggesting that defined-contribution plan participants would have standing because benefits under such a plan are tied to the value of accounts, which turn on the investment decisions of the plan fiduciaries.

This decision significantly reduces the avenues for defined-benefit plan participants to sue for breach of fiduciary duty under ERISA. Based on the Court’s dicta (noted above), a clear avenue would be where  the participants’ future benefits were at  substantial risk of non-payment; however, it is not clear to what extent, if at all, the Supreme Court would consider additional categories of damages to meet the injury-in-fact requirement for Article III standing.