In a 5-4 decision issued on Monday, the U.S. Supreme Court ruled that pension plan participants have no right to sue the people running their plans for fund mismanagement.
The Court’s majority opinion in Thole v. U.S. Bank holds that since most people participating in a traditional pension plan will receive their promised benefits regardless of how well their plans are managed, they cannot sue, even to stop the misappropriation of pension assets in cases like this one where the plan trustees invested the money to benefit themselves and lost nearly $750 million.
The opinion, written by Justice Brett Kavanaugh, gives short shrift to the provisions in the federal private pension law, the Employee Retirement Income Security Act of 1974 (ERISA), that say that participants have the right to sue to enforce provisions of the law that require plan trustees to manage plan money prudently, without conflicts of interest, and solely in the interest of plan participants and beneficiaries.
The Court acknowledges these provisions but rules that since the retirees who filed the lawsuit, James Thole and Sherry Smith, are receiving, and are likely to continue receiving, their benefits, the plan officials’ unlawful actions have not caused them a “monetary injury.” Without this kind of “concrete stake” in the outcome, the pensioners do not have the “standing” to file a lawsuit that is required by Article III of the U.S. Constitution.
The opinion asserts that legal action by retirees is not needed because pension funds face “a regulatory phalanx” consisting of employers and their shareholders, the U.S. Department of Labor, and other plan fiduciaries.
In a scathing 25-page dissenting opinion, joined by three other members of the Court, Justice Sonia Sotomayor concludes, that “[o]nly by overruling, ignoring, or misstating centuries of law could the Court hold that the Constitution requires beneficiaries to watch idly as their supposed fiduciaries misappropriate their pension funds.”
In support of her conclusion, Justice Sotomayor reviews historical and statutory evidence and the Court’s own cases that show that pension plan participants have a “concrete interest” not just in receiving their pension benefits but in receiving loyalty and prudence from their fiduciaries. She points out that, [a]fter today’s decision, about 35 million people with defined–benefit plans will be vulnerable to fiduciary misconduct.”
As for the “regulatory phalanx” relied on by the majority, she says that in cases like this one where the plan officials invested in their company’s mutual funds, paid themselves excessive fees, and made risky investments, “the employer, its shareholders, and the plan’s co-fiduciaries have no reason to bring suit because they either committed or profited from the misconduct.” She also points out that a brief submitted on behalf of the U.S. government said that the Labor Department does not have the resources to monitor every pension plan in the country.
“Those of us committed to protecting the retirement security of American workers and retirees are shocked by the Court’s decision,” says Pension Rights Center director Karen Ferguson. “The Court has shredded a key protection of the federal private pension law. No longer will workers and retirees be able to police the management of their pension funds. Plan trustees now have a green light to invest pension money recklessly and to use it to further their personal and corporate interests.”
PRC filed a friend-of-the-court brief in the case, Thole v. U.S. Bank N.A., U.S. Supreme Court No. 17-1712, June 1, 2020