The U.S. Supreme Court later this year will address the question of whether defined benefit plan participants can sue for fiduciary breaches even if a plan is overfunded and participants have not experienced a monetary loss.
While U.S. Bancorp, the plan sponsor, and groups like the Chamber of Commerce think the answer should be "no" if there is no harm, a broader question is whether participants can legally challenge investment decisions that could potentially harm them.
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The Supreme Court accepted the case, Thole vs. U.S. Bank, after it was dismissed by a lower court and the 8th U.S. Circuit Court of Appeals in St. Louis. Both courts said participants did not have statutory standing to assert fiduciary breach because the participants had not suffered any individual financial harm and there were enough plan assets to cover benefits.
Both the plaintiffs and the U.S. solicitor general's office, on behalf of the Department of Labor, asked the Supreme Court to revisit the standing question. The case has far-reaching implications for participants in defined benefit plans, said Michelle C. Yau, a partner at Cohen Milstein Sellers & Toll PLLC, co-counsel for the plaintiffs. "Plan participants should be able to hold fiduciaries accountable for reckless practices that put their retirement security at risk," Ms. Yau said.
The case began in 2013, when some participants in the U.S. Bancorp Pension Plan filed suit, claiming that plan fiduciaries engaged in prohibited transactions, including failing to diversify investments and investing in an affiliate's mutual funds. When the participants questioned the investments involved, U.S. Bank replaced those amounts.
According to the participants' Supreme Court petition, the plan had $2.8 billion in assets as of 2007, but that changed when plan fiduciaries ignored their investment consultants and invested all plan assets in high-risk equities, including 40% in a proprietary mutual fund, in violation of prohibited-transaction rules. The market crash of 2008 caused the plan to lose $1.1 billion, which the plaintiffs claim was $748 million more than a diversified portfolio would have lost, and caused a once-overfunded plan to drop to 84% funded. The sponsor contributed $339 million, restoring the plan to its overfunded status.
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