The Supreme Court is being petitioned to review a claim that could clarify when participants in defined benefit pension plans have a right to sue sponsors under the Employee Retirement Income Security Act.
The case, Pundt v. Verizon, derives from the landmark case, Lee v. Verizon, which challenged the $8.4 billion pension buyout contract the telecommunications giant purchased from Prudential in 2012.
Last August the 5th Circuit Court of Appeals upheld a lower court ruling in favor of Verizon. Participants had alleged the buyout annuity violated ERISA on several grounds.
The original claim against Verizon was brought by two classes of plaintiffs: the transferee class, the group of 41,000 retirees whose pension obligations were moved to Prudential; and the non-transferee class, the group of 50,000 participants with pension obligations that remain on Verizon’s books.=
Now, the Supreme Court is being asked to review only those claims brought by the non-transferee class.
That class alleged that the $1 billion in plan assets that Verizon used to pay fees to Prudential and others in the deal were excessive and unreasonable, and therefore a breach of ERISA.
Originally, the district court dismissed that claim on the grounds that the plaintiffs’ allegations lacked merit under Article III of the Constitution. The 5th Circuit upheld that decision.
Article III requires plaintiffs to show injury, and the relationship between the accused’s actions and the injury.
In its ruling, the 5th Circuit made a distinction between how fiduciaries’ misconduct harms participants in defined contribution and defined benefit plans.
In defined benefit plans, alleged fiduciary mismanagement might not actually harm participants if those actions don’t cause the plan to fail.
“Constitutional standing for defined benefit plan participants requires imminent risk of default by the plan, such that participants’ benefits are adversely affected,” wrote the 5th Circuit.
And that was not the case with Verizon de-risking deal, the appellate court reasoned in dismissing the case.
The plaintiffs argued that immediately after the buyout deal, the plan was $2 billion underfunded, and was only funded at 66 percent of its future obligations.
But that did not result in any direct harm to participants, as the plan continued to operate and maintain its future obligations to retirees.
In its petition for the Supreme Court to consider the case, attorneys for plaintiffs note the “circuit disarray” preceding the case.
Five circuit court decisions have ruled on the question of defined benefit participants’ Article III standing in bringing fiduciary claims without proving actual injury to participants.
Each court argued different requirements for Article III standing, claim the plaintiffs.
If the Supreme Court fails to step in and clarify, then participants’ course of action will vary by region of the country, and not the “unified national standards” intended by ERISA.
The Pension Rights Center has filed an amicus brief in support of the plaintiffs.
“ERISA’s core goal is spelled out in its title: employee retirement income security,” states the Pension Rights Center brief.
“Resolution of the issues in this case is enormously important, as it potentially affects the retirement income security of millions of plan participants. Too much protection is given to fiduciaries, and insufficient protection to participants and beneficiaries, when a participant in a defined benefit plan is required to show loss to individual benefits in order to having standing,” it said.
Source: Benefits Pro