US Supreme Court Rules on Defined Benefit Plan Litigation in Thole

“Courts sometimes make permanent law more complicated than necessary,” writes Associate Justice Brett M. Kavanaugh in the June 1, 2020 Supreme Court decision on Thole and. Alabama. v. US Bank NA and. Alabama.

Plaintiffs in Poppet claimed that the plan sponsor mismanaged the defined benefit plan when it lost $ 1.1 billion in 2008 during the time of the Great Recession. Specifically, the plaintiffs alleged that the plan sponsor violated its duties of loyalty and prudence due to a poor return on investment for plan assets. The lawsuit was filed under the Employee Retirement Income Security Act of 1974 (ERISA).

Among other things, the plaintiffs demanded that the defendant reimburse approximately $ 750 million in plan losses, as well as the replacement of the plan trustee. In addition, they requested $ 31 million in attorneys’ fees.

Plaintiffs James Thole and Sherry Smith are retired participants in a defined benefit retirement plan sponsored by US Bank. Mr. Thole receives $ 2,198.38 in monthly benefits and Ms. Smith receives $ 42.26 per month. Both participants have received all of their benefits to date and are entitled to receive those benefits every month for the rest of their life.

Participants in a defined benefit plan receive a specific monetary benefit in a monthly payment schedule or similar, based on work factors such as salary history and years of service. A defined contribution plan such as a 401 (k) is an alternative form of pension plan where the participant receives a payment that will vary depending on the amount they contribute to the plan, their investment options, and the performance of the funds.

The original case was dismissed by the United States District Court for the District of Minnesota. The U.S. Eighth Circuit Court of Appeals upheld the lower court’s ruling on the grounds that the plaintiffs had no standing, meaning they were not eligible for the court to decide the merits of the dispute.

At the time the original case was filed in 2013, the plan was underfunded. However, the plan sponsor made additional contributions that resulted in an over-funding status for 2014. At that time, the discussion item was also a consideration.

The United States Supreme Court upheld the judgment of the United States Eighth Circuit Court of Appeals, also on the grounds that the plaintiffs lack standing. The Supreme Court ruled that a plaintiff must demonstrate three conditions in order to establish standing under Article III of the Constitution:

  1. That you suffered a specific, particular, real or imminent injury,

  2. That the injury was caused by the defendant, and

  3. That the injury would likely be repaired by the requested judicial relief.

On Poppet, the Court noted that the plaintiffs were not injured because the amount of benefits owed to them did not change or will change based on the performance of the plan. Even if a defined benefit plan fails due to mismanagement, plan participants are protected through Pension Benefit Guaranty Corporation (PBGC) up to a certain level of benefits.

The plaintiffs raised four reasons why they should have standing in the matter, in relation to the following arguments:

  1. Plan injuries are injuries to plan participants,

  2. They have a position as representatives of the plan itself,

  3. ERISA offers defined plan participants and other specified parties a cause of action to sue for losses, and

  4. If plan participants don’t sue, no one will regulate the plan’s fiduciaries.

The Court did not consider these arguments to qualify to be in the matter and noted that defined benefit plans are regulated in many ways.

Tea Poppet The decision was 5-4, with Judge Roberts, Judge Thomas, Judge Alito and Judge Gorsuch joining Judge Kavanaugh. Judge Sotomayor wrote the dissent, with whom Judge Ginsburg, Judge Breyer, and Judge Kagan agreed.

June 2020