On June 1, 2020 and in a 5-4 decision, the U.S. Supreme Court held that participants in a defined-benefit retirement plan lacked Article III standing to bring a lawsuit against the plan’s fiduciaries under the Employee Retirement Income Security Act of 1974 (“ERISA”). Thole v. U.S. Bank, N.A., No. 17-1712. Plaintiffs James Thole and Sherry Smith are retired participants of U.S. Bank’s defined-benefit retirement plan. Under the terms of the plan, plaintiffs are guaranteed a fixed payment each month regardless of the plan’s value or the fiduciaries’ investment decisions with respect to the plan. Plaintiffs have been paid all of their entitled benefits; however, they filed a putative class-action suit in the U.S. District Court for the District of Minnesota against U.S. Bank and other defendants for alleged violations of their fiduciary duties and for mismanagement of the plan’s assets. Adedipe v. United States Bank, 2015 U.S. Dist. LEXIS 178380 (Dist. Minn. 2015).

Specifically, Plaintiffs alleged that the Defendants breached their fiduciary obligations, which caused the plan to engage in prohibited transactions with a Bank subsidiary in violation of ERISA. Plaintiffs also alleged that the Defendants engaged in a risky investment strategy, which, coupled with the ERISA violations, caused significant losses to the plan’s assets in 2008. The loss incurred resulted in an underfunding of the plan from 2008 through 2012. Plaintiffs’ alleged damages included the repayment of approximately $750 million to the plan in losses suffered due to the alleged mismanagement; injunctive relief, including replacement of the plan’s fiduciaries; and attorney’s fees.

U.S. Bank moved to dismiss the case for lack of standing. The U.S. District Court found that the Plaintiffs had Article III standing and denied the motion to dismiss; however, during the course of litigation, the plan became overfunded. In response, the Defendants moved to dismiss and claimed that the Plaintiffs had not suffered any financial loss, and their claims were now moot. The District Court concluded that, because the plan now had the ability to meet its financial obligations to plan participants, the plaintiffs lacked a concrete interest in any monetary relief that might be awarded to the plan if the plaintiffs prevailed on the merits, and dismissed the case. The Eighth Circuit affirmed the decision, but on statutory rather than Article III grounds. See Thole v. U.S. Bank, N.A., 873 F.3d 617 (8th Cir. 2017).

The Supreme Court majority affirmed the Eighth Circuit’s decision. The Court found that the Plaintiffs did not have an adequate stake in the litigation because they would receive the same amount of benefits under the plan regardless of the litigation’s outcome. Accordingly, the Plaintiffs did not suffer an injury in fact. Further, the Court rejected the Plaintiffs’ analogy of the plan to trust law because Plaintiffs are participants of a defined-benefit plan, and thus, do not have equitable property interests in the plan. Rather, the majority analogized the defined-benefit plan to a contract because the Plaintiffs’ benefits are fixed regardless of the quality of the management of the plan. The dissent disagreed with the majority’s implication that a financial injury is necessary to establish Article III standing on the grounds that trust beneficiaries have standing to bring claims for breach of loyalty even in the absence of any monetary loss to the plan.

Without evidence of a concrete injury, the Supreme Court’s decision has drastically reduced defined benefit plan participants’ ability to bring class action lawsuits to seek redress for alleged violations of ERISA against plan fiduciaries. The rationale in Thole may also create implications beyond the scope of ERISA related claims if the class does not suffer a concrete injury in fact.