U.S. Bank Wins Appeal Over Alleged Pension Plan Mismanagement

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Carmen Castro-Pagan

U.S. Bank N.A. defeated an appeal by pension plan participants who sought to revive a proposed class action challenging the plan’s allegedly risky investments, which the participants say caused a $1.1 billion drop in assets in 2008 ( Thole v. U.S. Bank, N.A. , 2017 BL 365295, 2017 BL 365295, 8th Cir., No. 16-1928, affirming district court decision 10/12/17 ).

Because the plan subsequently became overfunded, mainly after U.S. Bank contributed nearly $311 million, the participants lacked standing to sue under the Employee Retirement Income Security Act, the U.S. Court of Appeals for the Eighth Circuit held Oct. 12.

The decision affirms a district court ruling that dismissed the participants’ lawsuit and rejected their request for attorneys’ fees. The judges declined to address whether the district court erred by dismissing the participants’ claim challenging the plan’s strategy of investing all its assets in equities.

“The decision is contrary to the statutory language which allows participants and beneficiaries to sue to protect their interests without regard to the funding level of the plan,” Karen L. Handorf, partner at Cohen Milstein Sellers & Toll PLLC, told Bloomberg BNA Oct. 12. Handorf, who represents the participants against U.S. Bank, also said the decision allows fiduciaries to use plan assets recklessly and for their own benefit, without risk of being held accountable except in the most limited circumstances.

Standing Arguments

The judge’s decision is a victory for the U.S. Chamber of Commerce, which filed a brief supporting U.S. Bank, but a clear defeat for the positions advanced by the Department of Labor and AARP in their briefs regarding the ability of pension plan participants to sue over plan mismanagement.

In its brief filed last year, the DOL urged the Eighth Circuit to find that the ability of pension plan participants to bring claims over mismanagement doesn’t depend on the plan’s funding level. The department has pressed similar arguments in cases against Bank of America and Aegon USA but has had no success, losing in both the Fourth and Eighth circuits. Earlier this year, the Second Circuit sided with the DOL and allowed participants in the Central States, Southeast and Southwest Area Pension Plan to proceed with their lawsuit against Convergex Group LLC.

In the U.S. Bank case, the Eighth Circuit relied on a 2002 opinion that ERISA doesn’t allow a participant in a defined benefit plan to bring a lawsuit claiming liability under certain law provision for alleged breaches of fiduciary duties when the plan is overfunded. A breach of fiduciary duty causes no harm to a participant when the plan is overfunded, and allowing costly litigation would run counter to ERISA’s purpose of protecting individual pension rights, the court said.

The judges extended this ruling to the participants’ claim seeking injunctive relief.

Chief Judge Lavenski R. Smith wrote the opinion, which was joined by Judge Steven M. Colloton. Judge Jane Kelly issued a separate opinion agreeing with the court’s conclusion that the participants lacked standing on their claim of fiduciary breach. However, she dissented from the court’s holding that the participants lacked authority to bring their claims for injunctive relief.

U.S. Bank representatives didn’t immediately respond to Bloomberg BNA’s request for comment.

Zimmerman Reed PLLP along with Cohen Milstein represent the participants. Dorsey & Whitney LLP represents U.S. Bank.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at ccastro-pagan@bna.com

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

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