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In Thole v. U.S. Bank N.A., No. 17-1712, 2020 U.S. LEXIS 3030 (June 1, 2020), the U.S. Supreme Court ruled, 5-4, that defined pension plan participants lacked constitutional standing to sue over a $750 million loss to their plan because they had not yet missed a benefit payment. Justice Kavanaugh, writing for the majority, brought a new approach.  He analyzed the dispute as if it were a simple contractual matter involving an un-breached contract– i.e., no damages at present, no case at present. This might strike some ERISA practitioners as unusual since the last three decades of ERISA jurisprudence has focused on analyzing fiduciary actions under the law of equity. Under an equitable analysis, a fiduciary would, arguably, have a duty to protect a trust fund, like a pension fund, from preventable erosion.

Justice Clarence Thomas’ Concurrence was, perhaps, the most honest assessment of the Court’s ruling where he wrote, effectively, ‘did we really want to spend so much time in the law of equity?’ Thomas has been on the Court for 30 years – about two-thirds of ERISA’s statutory existence.

Now the Court’s newest members, Justices Kavanaugh and Gorsuch, are giving ERISA a look through new legal eyes. Justice Kavanaugh wrote that a pension shortfall, alleged to be the result of fiduciary mismanagement, was not an actual case because:

“Win or lose, they would still receive the exact same monthly benefits they are already entitled to receive.”

Given the Court’s broad ruling, it may be that pension funds have to be squandered and lost before there is a “case or controversy” under Article III of the U.S. Constitution.  The opinion details several of ERISA’s regulatory protections and discusses the backup insurance provided by the Pension Benefit Guaranty Company as a potential safety net to retirees.  (Although it should be noted that the PBGC has announced it will be insolvent by 2025).

In the dissent, Justice Sonia Sotomayor said:

“The Court holds that the Constitution prevents millions of pensioners from enforcing their rights to prudent and loyal management of their retirement trusts. Indeed, the Court determines that pensioners may not bring a federal lawsuit to stop or cure retirement-plan mismanagement until their pensions are on the verge of default. This conclusion conflicts with common sense and longstanding precedent.”

One fact that was obscured from the Court’s majority opinion, that figured prominently in the lower court decisions, was the important and operative fact that U.S. Bank transferred money into the plan to effectively overfund it during the litigation.  U.S. Bank’s self-corrective measure seemed persuasive to the judges below.  The move, which a healthy plan sponsor can pull off, may be more challenging for struggling plans. For those plans, the pensions may erode, and there is seemingly little that can be done under ERISA to remedy this after Thole.  The Court’s holding of the case is considerably broader than what was happening factually in Thole.

As the Court’s majority continues to emphasize texts, not the history behind the texts, it was not thinking about the Studebaker Automobile Company bankruptcy or other abuses that led to ERISA’s passage.  (ERISA took nearly ten years to pass after Studebaker went bankrupt and its workers lost everything in their retirement).  The Court, at least for the moment, seems content to let the federal government mop up any pension plan problems through its taxpayer supported pension insurance program.