On June 1, the Supreme Court of the United States decided Thole v. U.S. Bank, National Association, a case involving a breach of fiduciary duty claim under the Employee Retirement Income Security Act (ERISA). In affirming the Eighth Circuit’s decision, the Court determined that Article III of the U.S Constitution does not permit individual participants and beneficiaries to bring such claims against fiduciaries responsible for the investment of assets for defined benefit pension plans.
Defined benefit pensions (sometimes called “traditional pension plans”) are unlike 401(k) plans and other defined contribution plans, in that the eventual benefit paid to a participant is not related to the amount of contributions made or the actual performance of the investments held in trust. Rather, participants are entitled to receive a benefit based upon some objective formula, usually based on a function of the participant’s compensation and years of service for the sponsoring employer. Assets held in trust for such plans are intended as a fund to serve as surety that the benefits will be paid even if the employer enters bankruptcy or otherwise encounters financial difficulty. ERISA contains complex and involved rules which dictate the funding required in such plans.
ERISA governs the conduct of individuals responsible for the management and operation of employee benefit plans (including pension plans). The individual causes of action under ERISA do not differentiate between defined contribution and defined benefit plans. However, the Court’s decision did not depend upon a statutory distinction. Rather, the Court decided that, as a matter of Constitutional law, the plaintiffs were unable to demonstrate a stake in the outcome of the decision, as their benefits were objectively determinable regardless of the case’s outcome. The Court explicitly decided that even though the plaintiffs fell squarely within the class of individuals or entities with a statutory right of action, their claim was barred absent some showing that the plaintiff had suffered or would suffer an injury-in-fact based on the defendant’s conduct.
Practically speaking, this case is not likely to have a major impact on the actions of plan sponsors. The conduct alleged by plaintiffs remains unlawful under ERISA, and claims may still be brought to regulate such conduct by enforcing agencies (including the Internal Revenue Service, Department of Labor and Pension Benefit Guarantee Corporation). Additionally, it is clear that this ruling applies only in the context where the plaintiff’s right to a benefit is not associated with investment returns, and therefore would not impact a claim against the fiduciaries of a 401(k) plan or other defined contribution plan.
If you have questions or would like more information, please contact L. Stephen Bowers (firstname.lastname@example.org; 215.864.6247).