Supreme Court Rules Pensioners in Fully Funded Plans Can’t Serve ERISA Suits

Beneficiaries cannot sue fully funded pension plans for losing money on investments, the Supreme Court ruled Monday. The decision settled a seven-year Employee Retirement Income Security Act (ERISA) case for defined benefit plans.

Because plan participants James Thole and Sherry Smith would receive the same defined benefit payment from US Bancorp Pension Plan regardless of the fund’s value or its investment outcomes, the plaintiffs lacked standing in their case, the ruling said.

In other words, the plan beneficiaries had no “concrete stake” in the Thole v. US Bank lawsuit, according to a 5-4 majority opinion led by Justice Brett Kavanaugh. Courts have ruled in the past that pension funds must cause harm to beneficiaries, meaning they can’t pay their obligations, in order to violate their fiduciary duties.

But in a dissenting opinion, Justice Sonia Sotomayor wrote that the nation’s highest court had erroneously determined that pensioners cannot bring an ERISA suit against pension mismanagement unless the plans are on the brink of collapse.

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She wrote, “the Constitution prevents millions of pensioners from enforcing their rights to prudent and loyal management of their retirement trusts.” And noted, “The court does not explain how the pension could satisfy its monthly obligation if, as petitioners allege, the plan fiduciaries drain the pool from which petitioners’ fixed income streams flow.”

When they first filed their complaint in 2013, Thole and Sherry argued that the US Bancorp Pension Plan violated its fiduciary duty when it invested all the fund’s assets in high-risk equities, which lost the fund $748 million during the Great Recession and caused its funded ratio to drop to about 84%.

Soon afterward, however, US Bancorp contributed $339 million to fully fund the plan again at 115%, with $86 billion in assets under management.

Prior to making its way to the Supreme Court, the lawsuit was picked over in a lower court and the 8th US Circuit Court of Appeals, which determined that the now-stable pension plan negated any losses. The Supreme Court didn’t accept this reasoning as sufficient to toss out the lawsuit until Monday.

“The decision, though a narrow one, seems likely to forestall any number of potential fiduciary breach suits, if only because it limits the circumstances under which workers and retirees can sue,” according to the American Society of Pension Professionals and Actuaries.

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Tags: ERISA, Lawsuits, Pension, Thole v US Bank, US Bancorp Pension Plan, US Supreme Court

The president pledges to ‘protect American investors’ by studying the operational behaviors and guiding principles of the Chinese companies that they invest in.

President Donald Trump has pledged to instruct his Presidential Working Group on Financial Markets to study the operational behaviors of Chinese-based companies in American markets, citing potentially abnormal behaviors that may be adverse to the interests of the American investment firms that allocate capital to them.

The announcements came in a package of repercussions directed toward the Chinese Communist Party in relation to its treatment of the coronavirus pandemic, which the president alleges was diligently protected from spreading to other parts of China, but not the rest of the world.

The administration’s group will be instructed to “study the differing practices of Chinese companies listed on the US financial markets, with the goal of protecting American investors,” Trump said. “Investment firms should not be subjecting their clients to the hidden and undue risks associated with financing Chinese companies that do not play by the same rules.”

Trump noted that American companies should be granted additional modicums of corporate transparency when dealing with Chinese companies.

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Whether or not this investigation could be a prelude to decisionmaking related to American investments in Chinese companies, the president’s statements come soon after the White House and the US Department of Labor (DOL) instructed the Federal Retirement Thrift Investment Board (FRTIB) from moving forward with previously approved decisions to invest in global public equity indices inclusive of Chinese state-owned companies.

The idea was originally propagated by congressional lawmakers who detested the merits of investing in Chinese companies, citing that engaging in such capital allocations in Chinese companies infringes on American national security interests.

“It is well-known that the Chinese government uses state-owned and state-directed enterprises to control production, compete in global markets, and serve the Chinese Communist Party’s military, political, and economic goals,” said Sens. Jeanne Shaheen and Marco Rubio in a letter to FRTIB Chairman Michael Kennedy. “Many of these Chinese companies may soon receive investments directly from the paychecks of members of the US Armed Services and other federal government employees because of your decision.”

The index in question is the MSCI ACWI ex USA IMI, which includes a selection of securities deviating between industry and region, including a significant allocation to China.