U.S. Supreme Court’s Thole Decision Limits Plaintiffs’ Ability to Sue Plan Fiduciaries

On June 1, the U.S. Supreme Court decided Thole v. U.S. Bank N.A., which addressed whether participants in a defined benefit pension plan have Article III standing to sue under the Employee Retirement Income Security Act (ERISA). The majority found no standing where the plaintiff would be entitled to the same benefits regardless of the outcome of the case. Although Thole involved a defined benefit plan, the decision may also affect standing issues that are frequently raised in litigation over defined contribution plans.

In Thole, plaintiffs alleged that the fiduciaries of U.S. Bank’s defined benefit plan mismanaged plan assets, resulting in a loss of $750 million. During the course of the lawsuit, the plan became overfunded, and defendants moved to dismiss for lack of standing. The district court granted the motion, and the U.S. Court of Appeals for the Eighth Circuit affirmed.

The Supreme Court affirmed in a 5-4 decision on the ground that plaintiffs lacked standing under Article III of the U.S. Constitution. The Court ruled that Article III requires a plaintiff to have a “concrete stake in the lawsuit” and that plaintiffs could not meet that requirement because “they have received all of their vested pension benefits so far, and they are legally entitled to receive the same monthly payments for the rest of their lives. Winning or losing this suit would not change the plaintiffs’ monthly pension benefits.”

The Court rejected the four bases on which the plaintiffs premised their argument for standing. First, the Court rejected plaintiffs’ trust-based theory of standing, reasoning that a defined benefit plan is more like a contract than a traditional trust because the benefits to participants are not tied to the value of the trust. Second, the Court held that plaintiffs did not have standing as representatives of the plan itself because they still lacked an injury that would give them a concrete stake in the outcome of the case. Third, the Court rejected the idea that ERISA’s civil enforcement provisions allow plaintiffs to bring a claim without an Article III injury. Fourth, the Court rejected the argument that its ruling would leave no one to regulate plan fiduciaries because defined benefit plans are regulated in multiple ways. 

The decision should come as welcome news to ERISA fiduciaries. ERISA “fee and expense” class actions have become increasingly common but thus far have mainly been filed against fiduciaries of defined contribution plans. Thole makes it unlikely that this wave of litigation will be extended to defined benefit plans. The Court’s opinion all but closes the door on suits against overfunded plans and suggests that lawsuits against even underfunded plans might be difficult to pursue. 

The decision may also affect fee and expense cases against defined contribution plans. In most of these cases, plaintiffs challenge the prudence of a wide array of investment options, including options in which plaintiffs themselves never invested. Defendants commonly argue that plaintiffs lack Article III standing to pursue claims involving options they never chose. By making clear that “there is no ERISA exception to Article III” and that plaintiffs do not have standing by virtue of the fact that the plan suffered an arguable injury, Thole strongly supports the conclusion that plaintiffs lack standing to challenge options in which they never invested. And that conclusion makes sense: As Thole observed, winning or losing a claim involving those options will not change the amount of benefits to which those participants are entitled.