DOL Continues Uphill Battle on Pension Plan Standing

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By Jacklyn Wille

Oct. 20 — The Labor Department, despite several setbacks, is still trying to convince federal courts to make it easier for pension plan participants to sue over plan mismanagement and investment losses ( Thole v. U.S. Bank, N.A. , 8th Cir., No. 16-1928, amicus brief filed 10/19/16 ).

The department filed a brief Oct. 19 in support of U.S. Bank workers who accused the company of losing $748 million in pension assets by adopting an all-equity investment strategy that was overly risky and insufficiently diversified. In 2015, a district judge dismissed the lawsuit as moot after finding that the bank’s subsequent pension contributions resulted in the plan being fully funded.

In its brief, the department urged the U.S. Court of Appeals for the Eighth Circuit to find that the ability of pension plan participants to sue over mismanagement doesn’t depend on the plan’s funding level. The department has pressed similar arguments in cases against Bank of America, Aegon USA and Convergex Group LLC, but it’s had no success, losing in both the Fourth and Eighth Circuits. The Convergex case will be argued before the Second Circuit in December.

The department’s efforts to champion the standing of pension plan participants was dealt a serious blow earlier this year when the U.S. Supreme Court held in Spokeo, Inc. v. Robins that plaintiffs alleging statutory violations must show concrete—but not necessarily tangible—injury to demonstrate standing. Although the department has argued that Spokeo bolstered its position on standing, courts have disagreed and have cited the decision in denying standing to workers suing Verizon Communications Inc. and NCR Corp.

In its brief to the Eighth Circuit, the department argued that this trend toward denying pension plan participants standing is bad for both participants and the department itself, because the labor secretary will be left as the only entity that can use the courts to challenge pension mismanagement. In the department’s view, this will create a “significant burden for the Secretary, as the only person with standing, to bring suits to monitor and protect the many underfunded defined-benefit pension plans.”

On that point, the department noted that nearly 80 percent of single-employer pension plans are underfunded.

The question of standing has derailed a number of lawsuits against pension plan administrators. Because pension benefits are by nature defined—as opposed to 401(k) benefits, which vary with market fluctuations—courts often find that participants haven’t suffered an injury sufficient to confer standing unless the alleged mismanagement is so serious that their benefits are jeopardized.

The department has repeatedly rejected this reasoning, as have industry groups such as AARP. In their view, pension mismanagement that negatively affects a plan’s funded status is a sufficient injury to give plan participants standing to sue because each participant’s promised benefits becomes “less secure and devalued.”

The department’s brief was filed by M. Patricia Smith, G. William Scott, Thomas Tso and Melissa Moore.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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