Foxes, Henhouses, and Pension Plans: Supreme Court Concludes Pensioners Receiving Promised Benefits Can’t Sue for Retirement Plan Mismanagement
Legal Sidebari
Foxes, Henhouses, and Pension Plans:
Supreme Court Concludes Pensioners
Receiving Promised Benefits Can’t Sue for
Retirement Plan Mismanagement
June 30, 2020
In early June 2020, the Supreme Court handed down its decision in Thole v. U.S. Bank concerning the
ability of pension plan participants to sue plan fiduciaries who engage in al eged misconduct. In Thole,
the Court’s majority held, in a 5-4 decision, that pensioners receiving the full amount of their retirement
benefits lacked standing to sue plan fiduciaries for self-dealing and mismanagement of pension plan
investments. This Legal Sidebar provides background on federal pension plan regulation under the
Employee Retirement Income Security Act (ERISA) and standing to sue in federal courts; discusses the
Court’s decision in Thole; and concludes with selected legal considerations for Congress.
Background
ERISA’s Regulation of Pension Benefits
ERISA provides a comprehensive federal scheme for regulating private-sector employee benefit plans,
and currently governs approximately 710,000 retirement plans. The Act does not require employers to
offer pension benefits, but those that do must comply with the Act’s requirements. In general, ERISA
regulates two types of pension plans: defined benefit plans and defined contribution plans. The Thole case
involves a defined benefit plan, which “consist[s] of a pool of assets, rather than individual dedicated
accounts.” In a defined benefit plan, an employee is promised a specified future benefit (traditional y, an
annuity beginning at retirement) based on factors such as the employee’s salary, age, and years of service.
ERISA general y requires the employer to fund a defined benefit plan adequately, invest plan assets and
bear the risk for such investments, and compensate for any shortfal s. Should a defined benefit plan be
terminated with insufficient funds to pay retirement benefits, the Pension Benefit Guaranty Corporation
(PBGC) pays certain guaranteed benefits to plan participants, subject to statutory limits.
Congressional Research Service
https://crsreports.congress.gov
LSB10506
CRS Legal Sidebar
Prepared for Members and
Committees of Congress
Congressional Research Service
2
By contrast, a defined contribution plan (e.g., a 401(k) plan) is a retirement plan in which the
contributions, but not the benefits, are specified. These plans provide each participant with an individual
account that accrues benefits based on employer and employee contributions, as wel as any income,
expenses, and investment gains or losses to the account. The employee bears the investment risk, and the
account value at the time of retirement may fluctuate or decline over time. Defined contribution plan
benefits are not PBGC-insured.
Over the past few decades, there has general y been a steady decline in the number of defined benefit
pension plans, while the number of defined contribution plans has continued to increase. According to
2017 data from the Labor Department, there are approximately 35 mil ion participants in defined benefit
plans, and over 102 mil ion participants in defined contribution plans.
A central goal in enacting ERISA was to “protect . . . the interests of participants and . . . beneficiaries” of
employee benefit plans and assure that participants receive promised benefits from their employers. To
this end, ERISA imposes certain obligations on plan fiduciaries—persons who are general y responsible
for the management and operation of employee benefit plans. Fiduciaries must adhere to standards of
conduct, which include a duty of loyalty, prudence, and diversification of plan investments. ERISA also
“provid[es] for appropriate remedies, sanctions, and ready access to the Federal courts.” Under the Act,
private parties as wel as government entities can bring various civil actions to enforce ERISA’s
provisions. Among these enforcement provisions, ERISA authorizes the Secretary of Labor, a participant,
a beneficiary, or another plan fiduciary to bring a civil action to redress a breach of fiduciary duty. ERISA
makes a plan fiduciary personal y liable for breaches against an ERISA plan, and a breaching fiduciary
may have to return “any losses to the plan resulting from a breach” and restore to the plan any profits
made from misusing plan assets.
Standing to Sue
Before a court can decide issues under ERISA or any other federal statute, it must determine whether it
has jurisdiction to examine the issues in the case. As part of this inquiry, plaintiffs must convince a court
that they have standing under Article III of the Constitution to bring the legal action. Standing
requirements general y involve determining the proper party to seek relief from a federal court. These
requirements compel a plaintiff to demonstrate, among other things, an injury that is “concrete and
particularized.” As the Supreme Court has explained, such injury must be “real” and “not abstract,” and
“it must affect the plaintiff in a personal and individual way.” While Congress has the power to give a
plaintiff the right to sue under a federal statute (so-cal ed “statutory standing”), such a statutory right does
not automatical y confer constitutional standing under Article III. The Supreme Court has declared that
plaintiffs must demonstrate a cognizable injury under Article III even when there is a statutory violation.
The Thole Decision
In Thole, two retired participants in U.S. Bank’s defined benefit pension plan filed a class action lawsuit,
claiming the company and others violated ERISA’s fiduciary duty and other requirements by improperly
investing the plan’s entire portfolio in high-risk equities (including a large portion in mutual funds
managed by the company’s subsidiary) and paying themselves excessive fees. The retirees further
claimed that this investment strategy resulted in approximately $750 mil ion in losses to the plan and
caused the plan to be underfunded. The participants sought various remedies in federal court, including a
restoration of the losses to the plan and removal of the al egedly offending fiduciaries. However, as the
litigation proceeded, U.S. Bank made a large contribution to the plan that al owed the plan to meet
ERISA’s minimum funding standards. This change to the plan’s funding status spelled doom for the
participants’ case. Because the plan was no longer at risk of default, the district court dismissed the
retirees’ case as moot. The U.S. Court of Appeals for the Eighth Circuit affirmed the district court’s
Congressional Research Service
3
decision, but on the grounds that ERISA does not authorize plan participants to sue for a breach of
fiduciary duty when the plan is adequately funded.
In comparison to the Eighth Circuit, which held that the participants lacked statutory standing under
ERISA, the Supreme Court in Thole affirmed the judgment of the Eighth Circuit because the plan
participants did not have constitutional standing to bring a case against the plan fiduciaries. Justice
Kavanaugh, writing for the Court’s majority, concluded that the plan participants did not have
constitutional standing “for a simple, commonsense reason: [t]hey have received al of their vested
pension benefits so far, and they are legal y entitled to receive the same monthly payments for the rest of
their lives.” As the Court explained, because the plan participants receive the same level of benefits
regardless of the case’s outcome, they had no concrete injury to support their standing to sue.
The plan participants in Thole asserted, among other arguments, that they had constitutional standing to
sue because they have an interest in the plan’s assets as a whole, and that injuries to the plan constitute
injuries to individual participants. The Court rejected this argument, observing that, because the
participants’ benefits are fixed and independent of the plan’s value, the participants had no cognizable
interest in the plan itself. The participants also argued that they had standing to sue because they were the
only party that could meaningfully police the plan fiduciary’s conduct. The Court refused to accept this
argument as supporting Article III standing, explaining that defined benefit plan fiduciaries “face a
regulatory phalanx,” including regulation and monitoring by the Labor Department and other co-
fiduciaries.
Justice Sotomayor authored a dissent in Thole, joined by three other Justices. As the dissent put it: “Does
the Constitution compel a pension plan to let a fox guard the henhouse? Of course not.” Disagreeing with
the Court’s majority, the dissent indicated, among other things, that the plan participants could sue to
protect their interests in their pension plan’s assets. In the dissent’s view, “because petitioners have an
interest in payments from their . . . [pension] fund, they have an interest in the integrity of the assets from
which those payments come.” The dissent further maintained that the participants had standing to sue
because a breach of fiduciary duty is an injury to the participants, regardless of financial loss.
Legal Considerations
The Court’s ruling in Thole appears to restrict the circumstances in which defined benefit plan
participants can sue pension plan fiduciaries for making al egedly poor investment decisions, particularly
when the amount of the participants’ pension benefits is unaffected by those decisions. While
constitutional standing requirements may prevent plan participants from bringing legal actions against
plan fiduciaries under these circumstances, the Thole decision does not curtail the authority of the Labor
Department or other plan fiduciaries to sue to enforce ERISA’s fiduciary responsibilities. Additional y, it
is possible that the Thole case may have limited application in fiduciary breach cases involving more
prevalent defined contribution plans. As the Court recognized, defined contribution plans are structured
differently—unlike defined benefit plans, the value of defined contribution plan accounts may fluctuate
based on a fiduciary’s investment choices. Because of this key difference, plan participants in these cases
may have an easier time demonstrating their standing to sue.
Going forward, a “wrinkle” in the Thole case may be the subject of future litigation. In its majority
opinion, the Court pointed to an argument of the plan participants’ amici: that the participants would have
constitutional standing to sue when “the mismanagement of the plan was so egregious that it substantial y
increased the risk that the plan and the employer would fail and be unable to pay the participants’ future
pension benefits.” The Court contended that the plan participants in Thole did not al ege this theory of
standing, and that a “bare al egation” of plan underfunding did not demonstrate this risk of default on
pension obligations. Based on this language, the Court arguably seems to imply that there could be cases
Congressional Research Service
4
in which defined benefit plan participants could sue plan fiduciaries despite receiving promised benefits,
assuming the participants can show that their benefits were in substantial jeopardy.
Author Information
Jennifer A. Staman
Legislative Attorney
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.
CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United
States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However,
as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the
permission of the copyright holder if you wish to copy or otherwise use copyrighted material.
LSB10506 · VERSION 1 · NEW