Can the DOL Effectively Police Pension Fiduciary Breaches Alone?

In the 24 hours that have elapsed since a divided U.S. Supreme Court published its opinion in the long-running case known as Thole v. U.S. Bank, two clear camps have emerged of attorneys providing early commentary about the outcome.

As one might expect, given the fact that the Supreme Court ruling sides with the defendants in effectively declaring that pension plan participants cannot sue their employer under the Employee Retirement Income Security Act (ERISA) for fiduciary violations when their own benefit has not been cut or altered, those attorneys who work on fighting such claims hailed the ruling as a commonsense victory.

For example, Brian Netter, co-leader of Mayer Brown’s ERISA litigation practice, says that in recent years, courts have been “swamped by lawsuits alleging that retirement plan fiduciaries breached their duties.”

“It’s one thing when the plaintiffs filing the lawsuit have a stake in the outcome, but lawsuits by disinterested plaintiffs don’t belong in federal court,” he says. “The Supreme Court confirmed that the basic rules of Article III standing apply in the context of ERISA lawsuits, too.”

Also on the pro-ruling side stands the American Benefits Council, which describes itself as a public policy organization whose members include more than 220 of the world’s largest corporations that sponsor health and retirement benefit plans.

“The American Benefits Council is delighted to learn that the U.S. Supreme Court’s June 1 decision in Thole v. U.S. Bank followed the recommendations made in its November 2019 amicus brief filed with other employer groups,” says Lynn Dudley, the council’s senior vice president for global retirement and compensation policy. “A decision in favor of the plaintiffs could have opened the floodgates to lawsuits challenging particular investments in defined benefit [DB] plans—similar to lawsuits often filed against defined contribution [DC] plans—even though the benefits of the participants are not affected.”

Netter and Dudley highlight the portion of the ruling that states that the employer, not plan participants, receives any surplus left over after all the benefits are paid. By the same token, they say, the employer, not plan participants, is on the hook for plan shortfalls.

On the other side of the debate stand consumer advocates and the plaintiffs’ attorneys who argue for employees in such cases.

Michael Joyce, Saul Ewing Arnstein & Lehr employee benefits and ERISA litigation partner, suggests the opinion “pushes the ability of participants in a defined benefit pension to file suit practically to extinction.”

“The Supreme Court technically left open an avenue for individual pension plan participants to file a claim on behalf of the plan even before their own benefit is cut, but their demand that any fiduciary breaches or mismanagement be outrageous and egregious makes the filing of suit nearly impossible in practical terms,” Joyce says. “Even if a participant can show that there is such bad management going on that future insolvency is likely, which would put their benefits in jeopardy, the plaintiff would have to tackle the issue raised in footnote two in the ruling, which states that participants’ benefits are insured by the Pension Benefit Guaranty Corporation [PBGC]. It seems like the majority on the court feels that is sufficient to prevent standing, as well.”

Joyce says he is skeptical of the majority ruling’s statement that the Department of Labor (DOL) can adequately police fiduciary breaches among the nation’s many thousands of pension plans.

“To me that is almost a comical position, because we all know that the plan participants and their counsel are really the watchdogs in this industry,” Joyce says. “They have the biggest stake and they care the most about what is happening to their plans. I think everyone would agree that, even if individual participants are still getting their monthly payments, they still have a very direct interest in making sure their money is being handled appropriately.”

To be clear, Joyce says, the Department of Labor can be a very effective and convincing litigator. The problem is more about scale and resources.

“I have dealt with the DOL in ERISA cases, and I can say confidently that when they bring a case, they really fight hard and do a good job,” Joyce says. “But there is just no way the DOL alone can police all the thousands of plans and the millions of participants.”