DB plan’s return to overfunded status dooms fiduciary breach claims

Retirees who filed suit alleging fiduciary breach when their defined benefit plan became underfunded could not continue their claims under ERISA Secs. 502(a) (2) and 502(a) (3) after the plan subsequently became overfunded because they could not show they had suffered an injury, the U.S. Court of Appeals in St. Louis (CA-8) has ruled. In addition, the court rejected the retirees’ attempts to recover attorney’s fees and costs, concluding the retirees failed to produce evidence that their lawsuit was a material contributing factor in the plan sponsor’s decision to make a voluntary contribution to the plan.

Underfunded plan

In 2013 two retirees receiving monthly benefits from a defined benefit plan filed a class action suit against the plan’s sponsor and trustee alleging breach of fiduciary duty and violation of prohibited transaction rules under ERISA Secs. 404, 405, and 406. The plan’s sponsor, a large U.S. bank, had designated a subsidiary to be the plan’s investment manager. The retirees alleged that by 2007 the investment manager had invested the entire plan portfolio in equities. In the wake of the 2008 recession, the plan went from being significantly overfunded in 2007 to being 84 percent underfunded in 2008.
However, both the named plaintiffs continued to receive all payments under the plan to which they were entitled. Further, while the plan was underfunded at the commencement of litigation in 2013, in 2014 the plan once again became overfunded. (The plan sponsor made a voluntary plan contribution.)
In their 2013 suit the retirees sought to recover plan losses, disgorgement of profits, injunctive relief and other remedial relief pursuant to ERISA Sec. 502(a)(2) and ERISA Sec. 409. They also sought attorney’s fees and costs.
In a series of rulings in 2014 and 2015 (after the plan was once again overfunded), the district court dismissed the retirees’ claims. With respect to the all-equities investment strategy followed by the investment manager, the court concluded that because the plan had become invested entirely in equities more than six years before the commencement of the suit, the claims were time-barred under ERISA Sec. 413. The court also determined that because the plan was once again overfunded, the case was now moot. Finally, the court rejected the retirees’ motion for an award of attorney’s fees and costs.
The appellate court affirmed the lower court’s findings in favor of the plan sponsor and trustee, although it grounded its decision in its reading of ERISA’s enforcement provisions, rather than questions concerning mootness and the statute of limitations. Under ERISA Sec. 502(a)(2) and 502(a)(3), a plaintiff must show actual injury—to the plaintiff’s interest in the plan under (a)(2) and to the plan itself under (a)(3). Given that the plan is now overfunded, the court reasoned, there is no actual injury to the plan that could cause injury to the retirees’ interest in the plan.

Attorney’s fees

The appellate court also upheld the lower court’s rejection of the fee award request. It’s true, the court explained, that award of attorney’s fees in an ERISA case may be proper when the plaintiff’s suit operated as a catalyst to bring about a voluntary change in the defendant’s conduct. In this case, however, the retirees failed to produce evidence that their lawsuit was a material contributing factor in the plan sponsor’s making the 2014 contribution, which resulted in the plan’s overfunded status.

Source: Thole v. U.S. Bank, N.A. (CA-8)
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