A plan participant’s standing to sue under a define benefit pension plan was addressed by the US Supreme Court in two important cases: Thole v. US Bank (2020) and LaRue v. Dewolff (2008). These cases outline the limits of standing for a pension plan participants to sue for fiduciary breaches by a plan fiduciary.
Thole v. US Bank instructs that plan participants lack standing to sue for individual losses under a defined benefit plan, if plaintiffs had no concrete stake in the lawsuit. Justice Kavanaugh explained the standing issue this way:
If Thole and Smith were to lose this lawsuit, they would still receive the exact same monthly benefits that they are already slated to receive, not a penny less. If Thole and Smith were to win this lawsuit, they would still receive the exact same monthly benefits that they are already slated to receive, not a penny more. The plaintiffs therefore have no concrete stake in this lawsuit.
LaRue v. Dewolff also addresses the legal (Article III) standing of plan participants, holding that participants may sue to protect the entire plan (but not individual entitlements under the plan), but only if the conduct of the defendant fiduciary risks or enhances default bo the plan. Justice Stevens explained the distinction this way:
Misconduct by the administrators of a defined benefit plan will not affect an individual’s entitlement to a defined benefit unless it creates or enhances the risk of default by the entire plan [emphasis added].
A clear rule is apparent by comparing these two cases: a plan participant has standing to sue a defined benefit plan fiduciary for wrongful conduct that creates or enhances the risk of default by the entire plan; but lacks standing to sue for individual losses under the plan.
Further, the plaintiff’s case must plausibly allege that the fiduciary’s actions “create or enhance risk of default by the entire plan,” to overcome a motion to dismiss.
This means lawsuits that allege a risk of default to the entire plan must include an PBGC-type analysis of an imminent default and, likely, have support of PBGC itself. This is no small barrier to a fiduciary lawsuit under a defined benefit plan, but is doable, certainly, if coordinated with, or piggybacked on, an action filed or contemplated by PBGC.
At McBride PC, we represent participants in defined benefit plans where the risk of default under a plan has been created or enhanced by a plan fiduciary. The most obvious case of this high degree of risk in the current market is the risks presented by Liability Driven Investments. We already have plain early warning signals from the recent UK pension disaster that LDIs create an unacceptable risk of default under a defined benefit plan. See here and here.
Don’t let your defined benefit pension plan fail because of risks created or enhanced by a fiduciary. If you have reason to suspect such a problem in your plan, call us for a plan review.
