Buckle up, plan sponsors: ERISA cases to watch in Supreme Court’s upcoming term

Category: ERISA, Supreme Court, retirement plan, 401(k), stock drop, fiduciary duty, pension

Buckle up, plan sponsors: ERISA cases to watch in Supreme Court’s upcoming term


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The Supreme Court has agreed to hear in its next term several lawsuits that will impact plan sponsors and their responsibilities and risk exposure. These are the first cases filed under the Employee Retirement Security Act of 1974 (ERISA) that have been granted cert by the high court in more than two years, and the resulting decisions will likely have significant implications for the scope of fiduciary duties, potential plaintiff classes, and which party bears the burden of proof.

Intel v. Sulyma: Actual Knowledge

A retirement plan participant filed suit alleging that Intel fiduciaries made imprudent 401(k) investments and charged excessive fees. Intel argued that the claims were barred by the three-year statute of limitations for breach of fiduciary claims, because the plan’s disclosures gave participants “actual knowledge” of the breach – whether or not they chose to read them. Plaintiff argued that this would actually represent at most constructive knowledge, not actual knowledge. The Ninth Circuit Court of Appeals held that a plaintiff must actually be aware of the nature of the alleged breach for a fiduciary to avail itself of the three-year statute of limitations under ERISA.  

The Supreme Court decision will address an underlying circuit court split in pinning down what rises to the level of actual knowledge, which is not itself defined in ERISA. What may concern the Court, however, is that if it upholds the Ninth Circuit view, it will become nearly impossible to dismiss a claim on statute of limitations grounds in the early stages of litigation.

IBM v. Jander: Stock Drop Case

Plaintiffs alleged that IBM fiduciaries knew that IBM’s market price was artificially inflated when its microchip division was losing $700 million per year (and was later sold), while the company maintained publicly that the business was doing well. In this “stock drop” case, participants asserted that the plan sponsor should have made corrective disclosures or frozen investments in IBM stock. The U.S. Court of Appeals for the Second Circuit agreed with plaintiffs in holding that no prudent fiduciary would fail to promptly disclose, since it was plausible that such failure would do more harm than good (implicating the Dudenhoeffer standard).

The Supreme Court decision could clarify whether the pleading standards for breach of fiduciary duty claims under ERISA can be satisfied by generalized allegations that the harm of an inevitable disclosure of an alleged fraud increases over time. The decision should also give employers who offer company stock as a plan investment a better understanding of what they should do when they learn their stock values are about to fall.

Thole v. U.S. Bank: Standing to File Suit

Participants in U.S. Bank’s pension plan filed suit alleging mismanagement after investment losses of $750 million. Plaintiffs claimed the plan sponsor’s decision to invest all $2.9 billion of the pension assets in what were described as “high-risk equities,” including more than 40% in its own proprietary funds, violated fiduciary principles of prudence and loyalty. Over the course of the case, however, the plan’s funding status changed, going from underfunded to overfunded. The U.S. Court of Appeals for the Eighth Circuit ruled for U.S. Bank, noting that participants had not suffered any actual losses and so were without a financial injury on which to base damages.

The Supreme Court decision will resolve a split among the circuits on this issue: the Second, Third and Sixth Circuits have held that the violation of ERISA rights is sufficient for standing to bring suit, without establishing loss; the Fourth, Fifth and Ninth Circuits have denied standing in similar cases on Constitutional grounds. The Eight Circuit cited ERISA in denying standing in Thole.

Not yet on the docket: Putnam v. Brotherston

Finally, while the Supreme Court has not yet agreed to hear the Brotherston case, it did request that the U.S. Solicitor General file a brief expressing the views of the United States. A high court decision could resolve a split in the circuit courts on the burden of proof under ERISA: the First, Fourth, Fifth and Eighth Circuits have ruled that a defendant bears the burden of proving loss causation in ERISA cases; the Second, Sixth, Seventh, Ninth, Tenth and Eleventh Circuits have held those bringing suit bear that burden.

Waller’s ERISA and Employee Benefits Team will provide future updates on these cases as they develop.

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