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David v. Alphin

Court Decides That Participants Do Not Have the Right to Sue for Mismanagement of Their Pension Plans

    

The U.S. Court of Appeals for the Fourth Circuit refused to permit plan participants to bring lawsuits to protect their plan from alleged financial mismanagement.

Background

In August 2006, employee plan participants sued Bank of America’s (BoA) cash balance plan and 401(k) plan. They alleged BoA and plan fiduciaries breached their fiduciary duties and engaged in prohibited transactions by selecting BoA-affiliated mutual funds as investment options and that the fees and expenses associated with bank-affiliated mutual funds were unreasonable and excessive. The participants argued that the defendants were liable for all losses incurred by both plans as a result of their fiduciary breaches.
 
The trial court found that the employees had not suffered an injury-in-fact because their benefits under the cash balance plan were guaranteed and, if there was any sort of loss caused by improper investments, the risk was carried by BoA, not the plan. Accordingly, the court found that the participants had no standing to challenge any potential breach of fiduciary duty in selecting and maintaining the BoA affiliated mutual funds as investments in the cash balance plan. There was a subsequent decision resolving the allegations concerning the 401(k) plan.

AARP’s friend-of-the-court brief, filed by attorneys with AARP Foundation Litigation, focused on the issue of whether a participant can bring a lawsuit on behalf of a defined benefit plan for recovery of plan assets, where there is no apparent and current direct loss to the individual participant. AARP argued that whether the plan is overfunded is immaterial to whether the trustees should have to repay the plan for breaches of fiduciary duty when they have imprudently chosen and monitored the plan’s investment. The Department of Labor and the Pension Benefit Guaranty Corporation (PBGC) also filed in support of the participants.

What’s at Stake

The court held that the participants lacked standing to assert imprudent investment claims against the defined benefit pension plan because they had not suffered an injury from the plan's investments. Because the PBGC guarantees the participants’ benefits and the Department of Labor could sue the plan if participants do not have standing, “the risk that Appellants' pension benefits will at some point in the future be adversely affected as a result of the present alleged ERISA violations is too speculative to give rise to Article III standing,” the court concluded. 

Case Status

David v. Alphin was decided by the U.S. Court of Appeals for the Fourth Circuit.

 

 

 

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