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May 23 —An appellate court must reconsider its decision upholding Verizon Communications Inc.'s decision to “de-risk” and remove 41,000 retirees from its pension plan by transferring billions of dollars in plan obligations to a group annuity contract, the U.S. Supreme Court announced today.
The lawsuit asked the justices to resolve questions about standing that have plagued workers who attempt to challenge the management of their defined benefit pension plans under the Employee Retirement Income Security Act.
Several federal courts, including the Fourth and Fifth circuits, have held that pension plan participants lack constitutional standing to challenge alleged mismanagement that doesn't affect their individual ability to receive pension benefits.
The justices ordered the U.S. Court of Appeals for the Fifth Circuit to rethink its position on standing in light of the Supreme Court's May 16 decision in Spokeo, Inc. v. Robins, U.S., No. 13-1339, 5/16/16. The court's 6-2 decision in Spokeo—which held that a litigant's injury must be “concrete” though not necessarily “tangible” to establish standing—was crafted in such a way that allowed both the plaintiffs' and defense bar to claim victory (95 PBD, 5/17/16).
Rather than resolving the question of pension plan standing one way or another, the Spokeo decision “gives both sides ammunition,” Robert W. Rachal, an ERISA litigator with Proskauer Rose LLP in New Orleans, told Bloomberg BNA May 23.
According to Rachal, Spokeo makes clear that a mere statutory violation isn't sufficient to give a pension plan participant standing to sue. Rather, a participant must show “concrete harm,” which can be difficult in the case of a well-funded plan, he said.
In particular, Rachal said that a worker at a company that experiences a drop in pension funding level from 100 percent to 95 percent probably hasn't experienced a sufficient injury, because the “harm is too speculative.” That might not be the case if, for example, a financially distressed company sees its pension funding levels drop substantially, he said.
“I think courts are going to use a pragmatic, common-sense approach to this question,” Rachal said. “That's what they've done so far, and I don't see Spokeo changing that. Concrete harm is more than just immediate financial impact, and it can include intangible harms, but it has to be more than mere speculation.”
Teresa Renaker, a plaintiff-side ERISA attorney and a partner with Renaker Hasselman LLP in San Francisco, said that she read Spokeo as giving the workers a stronger claim to standing.
“I think Spokeo makes clear that the risk of harm to participants where defined benefit plan fiduciaries have allegedly caused losses to the plan is sufficient for injury in fact,” Renaker told Bloomberg BNA in a May 23 e-mail. “This conclusion should be particularly clear where the plan is in a precarious funding position, as alleged” in the lawsuit against Verizon.
“The Fifth Circuit’s conclusion that injury in fact is lacking until there’s an imminent risk of default by the plan does not correctly assess the risk to participants,” she continued. “The risk analysis should include consideration of participants’ ability to vindicate their rights after a defined benefit plan has defaulted on its benefit obligations. The Ninth Circuit has said there’s no redressability at that point because” of the Pension Benefit Guaranty Corporation's role. “If that’s correct, then the risk to participants even before there is an imminent risk of default is sufficient for injury in fact.”
Rachal and Renaker weren't involved in the Verizon litigation.
Michelle C. Yau, an attorney with Cohen Milstein Sellers & Toll PLLC who represents the Verizon workers, praised the Supreme Court's decision to remand.
“We are thrilled by the Supreme Court’s order granting certiorari and vacating the Fifth Circuit’s incorrect decision that Petitioner Pundt did not have standing to pursue his ERISA claims,” Yau told Bloomberg BNA in a May 23 e-mail. “The Supreme Court’s recent decision in Spokeo v. Robins makes clear that participants in ERISA defined benefit plans suffer de facto injury when denied their statutory rights and thus have standing to pursue their claims without showing additional harm, other than the ERISA violation itself.”
Yau added that the court's decision remanding the Verizon case hints at a more plaintiff-friendly approach to standing.
“It is telling that the first case remanded in light of Spokeo vacates an appeals court opinion that took a very restricted view of standing, suggesting that the Supreme Court views Spokeo as upholding, not limiting, a broad approach to standing,” Yau said.
Jeffrey G. Huvelle, senior counsel with Covington & Burling LLP and counsel for Verizon, said he was confident that a reconsideration of the case under Spokeo wouldn't change the outcome in favor of his client.
“We expect that the standard articulated by the Supreme Court in Spokeo will produce exactly the same result,” Huvelle told Bloomberg BNA May 23.
The lawsuit against Verizon challenges the company's effort to de-risk its pension plans, a move some major corporations have attempted or considered as a means of reducing their future exposure to pension liabilities.
Verizon paid Prudential Insurance Co. of America an $8.4 billion premium in 2012 to take over the monthly pension payments of some of its retirees.
On the question of standing, the Fifth Circuit said that the workers who remained in the Verizon pension plan—who challenged the negative effect on plan funding levels following the de-risking move—didn't have standing to sue the company because they couldn't show that they had been injured by the change.
The workers appealed this ruling to the Supreme Court, asking the justices whether ERISA allows participants in defined benefit plans to sue over statutory violations, such as the fiduciary breach allegedly committed by Verizon, even if they don't suffer a loss in individual benefits.
That question will now go to the Fifth Circuit for reconsideration on remand.
Cohen Milstein Sellers & Toll PLLC and Law Office of Curtis L. Kennedy represented the Verizon workers. Covington & Burling LLP represented Verizon.
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