The U.S. Supreme Court is mulling over whether retirement plan participants must demonstrate individual or imminent risk of financial loss before seeking a breach of fiduciary duty action under the Employee Retirement Income Security Act of 1974 (“ERISA”). On January 13, 2020, the U.S. Supreme Court heard oral arguments in the matter of Thole v. U.S. Bank, N.A. (No. 17-1712), and the Court’s coming decision could have wide-reaching implications for participant standing in ERISA causes of action.
The plaintiffs in Thole, who are participants in a U.S. Bank defined benefit pension plan (the “Plan”), allege that the defendants breached their fiduciary duties by mismanaging and failing to diversify the Plan’s assets. According to the plaintiffs, leading up to 2007, the Plan investment manager, FAF, invested the entire Plan portfolio in FAF-managed equities rather than a more diversified set of investments. The plaintiffs allege that, as a result, the Plan lost $748 million in 2008, which caused the Plan to become underfunded. The plaintiffs alleged that the underfunded status of the Plan injured the plaintiffs by increasing risk of default.
In 2014, while the parties were litigating, the Plan became overfunded, in part due to voluntary Plan contributions by the defendants amounting to $311 million. The district court dismissed the suit, agreeing with the defendants that the plaintiffs could not demonstrate injury in fact because the increased risk of Plan default had been alleviated. The Eighth Circuit affirmed the district court’s decision to dismiss and held that, when a plan is overfunded, defined benefit plan participants no longer fall within the class of plaintiffs authorized to bring suit under ERISA for a breach of fiduciary duty (873 F.3d 617 (8th Cir. 2017)). The plaintiffs argued on appeal to the U.S. Supreme Court that the Plan’s funding status should not dictate whether participants have an ability to sue for a breach of fiduciary duty. The Department of Labor expressed support for the plaintiffs’ position in an amicus brief.
The parties are now waiting on a decision from the U.S. Supreme Court which could resolve a circuit split on the issue.