The Supreme Court of the United States has ruled in the case known as Thole v. U.S. Bank, which asks some intricate but fundamentally important questions about what it takes for pension plan participants to establish standing in the context of fiduciary breach lawsuits.

In short, the Supreme Court’s conservative majority has sided with the two lower courts that have ruled in the case, joining them in rejecting the plaintiffs’ calls to revive the fiduciary breach lawsuit that cites the Employee Retirement Income Security Act (ERISA). With the new ruling, all three levels of the federal courts have sided with U.S. Bank’s argument that the plaintiffs in the case have not suffered concrete harms of the type required to establish standing under U.S. law.

Put in simple terms, the courts have determined that pension plan participants who have not seen their own benefit payments reduced or otherwise altered cannot sue their employer on behalf of the whole pension plan for failing to live up to ERISA’s fiduciary duties. Importantly, the Supreme Court ruling draws a direct distinction between defined benefit (DB) pension plans and defined contribution (DC) plans in such matters, noting that DC plan participants can prove standing in fiduciary breach lawsuits far more often because their benefit value directly fluctuates along with the financial condition of the plan, whereas it is the employer that carries the risk in pension plans.

Justice Brett Kavanaugh delivered the formal opinion of the court, and was joined by Justices Clarence Thomas, Samuel Alito and Neil Gorsuch. Thomas filed a concurrent opinion, in which Gorsuch joined. On the other hand, Justice Sonia Sotomayor filed a dissenting opinion, which Justices Ruth Bader Ginsburg, Stephen Breyer and Elena Kagan joined.

Like the lower court rulings that rejected the plaintiffs’ claims, the high court’s majority ruling states that none of the plaintiffs’ arguments suffices to establish Article III standing. In an explanatory syllabus attached to the ruling, the ruling majority states that the two lead plaintiffs “have no concrete stake in the lawsuit,” and so they lack Article III standing.

“Win or lose, they would still receive the exact same monthly benefits they are already entitled to receive,” the summary syllabus states. “None of the plaintiffs’ arguments suffices to establish Article III standing. The plaintiffs rely on a trust analogy in arguing that an ERISA participant has an equitable or property interest in the plan and that injuries to the plan are therefore injuries to the participants. But participants in a defined benefit plan are not similarly situated to the beneficiaries of a private trust or to participants in a defined contribution plan, and they possess no equitable or property interest in the plan.”

The majority opinion relies on the fact that the plaintiffs “cannot assert representative standing based on injuries to the plan where they themselves have not suffered an injury in fact or been legally or contractually appointed to represent the plan.” Furthermore, the majority opinion emphasizes that ERISA’s affording to all participants—including defined benefit plan participants—a cause of action to sue “does not in itself satisfy the injury-in-fact requirement.”

The crux of the ruling is that Article III standing requires a concrete injury even in the context of a statutory violation.

“The plaintiffs contend that meaningful regulation of plan fiduciaries is possible only if they may sue to target perceived fiduciary misconduct,” the syllabus notes. “But this court has long rejected that argument for Article III standing, see Valley Forge Christian College v. Americans United for Separation of Church and State Inc. Defined benefit plans are regulated and monitored in multiple ways. The plaintiffs’ amici assert that defined benefit plan participants have standing to sue if the plan’s mismanagement was so egregious that it substantially increased the risk that the plan and the employer would fail and be unable to pay the participants’ future benefits. The plaintiffs do not assert that theory of standing here, nor did their complaint allege that level of mismanagement.”

Previously discussing the case with PLANSPONSOR, Karen Handorf, partner at Cohen Milstein and the lead attorney for the plaintiffs, said a ruling against her clients would represent a significant blow to the rights of individual pensioners under ERISA.

“Federal courts have taken this matter up in a few different contexts and, at this stage, a number of circuit courts have said you don’t, generally speaking, have standing to sue an adequately funded pension plan for harming its participants,” Handorf said. “To me, that’s a really strange and unfortunate stance to take, because it essentially wipes out a big portion of ERISA, which was written to give people the right to sue plan fiduciaries for breaches of their fiduciary duty and to prevent prohibited transactions. The whole idea that the funding level of the plan somehow means fiduciary breaches can’t occur is hard to grasp, because we all know that the funding level of a plan can change quite quickly, depending on the markets and everything else.”

Notably, these are some of the same arguments included in the dissenting opinion penned by Justice Sotomayor. Echoing multiple “friend of the court” briefs field by various parties, including the U.S. Solicitor General, the dissenting opinion states that the current funded status of a defined benefit plan is not a proper measure for whether the participants have a right to sue for breaches of fiduciary duties and prohibited transactions under ERISA.

“Petitioners have an interest in their retirement plan’s financial integrity, exactly like private trust beneficiaries have in protecting their trust,” the dissenting opinion states. “By alleging a $750 million injury to that interest, petitioners have established their standing. … Second, petitioners have standing because a breach of fiduciary duty is a cognizable injury, regardless whether that breach caused financial harm or increased a risk of nonpayment. … Last, petitioners have standing to sue on their retirement plan’s behalf. Even if petitioners had no suable interest in their plan’s financial integrity or its competent supervision, the plan itself would. There is no disputing at this stage that respondents’ mismanagement caused the plan approximately $750 million in losses still not fully reimbursed. … The plan thus would have standing to sue under either theory discussed above.”

Asked about what an adverse ruling would mean for her clients and pensioners at large, Handorf said the results could be dire.

“What if a plan becomes underfunded, giving you standing to sue, but the alleged breach of the fiduciary duty happened longer ago that than the relevant statute of limitations? Are you just out of luck in that case?” Handorf asked. “If this is cemented as the standard it will mean that plan fiduciaries can basically get away with anything, so long as they have a well-funded plan during the period that the statute of limitations is running.”

Responding to such points, the majority opinion states that ERISA “expressly authorizes the Department of Labor [DOL] to enforce ERISA’s fiduciary obligations. … And the Department of Labor has a substantial motive to aggressively pursue fiduciary misconduct, particularly to avoid the financial burden of failed defined benefit plans being back-loaded onto the federal government.”

A number of ERISA attorneys have already provided some early legal analysis of the decision, including Mayer Brown partner Brian Netter, a co-leader of the firm’s ERISA Litigation practice.

“In recent years, courts have been swamped by lawsuits alleging that retirement plan fiduciaries breached their duties,” Netter says. “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. Today, the Supreme Court confirmed that the basic rules of Article III standing apply in the context of ERISA lawsuits, too.”

Adam Cohen, partner at Eversheds Sutherland and member of their tax practice group, says the ruling limits the ability of participants to sue defined benefit plan fiduciaries before their benefit amount is directly impacted. However, he is unsure whether this means participants now will have less recourse in practical terms.

“The investment decisions made by defined benefit plan fiduciaries remain subject to suit by the Department of Labor, and of course the fiduciaries continue to be bound by the strict prudence, diversification, and other requirements of ERISA,” Cohen says. “The ruling leaves the door open a small crack to participants who can plausibly allege that the mismanagement of the plan substantially increased the risk that future benefits would not be paid. This appears to be a high bar, but for employers with chronically underfunded plans, it could be a relevant consideration.”