The Fourth Circuit recently held that participants in a defined benefit plan lacked standing under Article III of the United States Constitution to challenge investment decisions made by the plan’s fiduciaries.  David v. Alphin, No. 11-2181 (4th Cir. Jan. 14, 2013).  The plan at issue was overfunded and the participants had not failed to receive any benefit to which they were entitled under the plan.  The Fourth Circuit held that the plaintiffs had not experienced an injury that would be redressed by a favorable outcome in the litigation.  Without such an injury, the plaintiffs did not have constitutional standing under Article III.

The defined benefit plan at issue in David is sponsored by Bank of America.  The plan is a cash balance plan that provides earnings adjustments based on the return of hypothetical investments in various assets, including Bank of America-sponsored investment funds.

The plaintiffs sued Bank of America and the plan’s fiduciaries, alleging that the use of Bank of America-sponsored investment funds resulted in prohibited transactions and breaches of fiduciary duty.  The plaintiffs did not assert that they experienced any actual economic harm from the defendants’ actions.  The district court dismissed the claims because, in its view, the plaintiffs had suffered no concrete, cognizable injury from the defendants’ actions.

The plaintiffs appealed, advancing several arguments in support of their claim to have constitutional standing.  Both the Department of Labor and the Pension Benefit Guaranty Corporation filed amicus briefs on behalf of the plaintiffs.

The Fourth Circuit was not persuaded.  The court’s key holdings were:

  • Potential ERISA plaintiffs cannot have “representational standing” (i.e., the authority to step into the plan’s shoes for purposes of redressing injuries to the plan itself) without a contractual assignment to the plaintiffs of the plan’s injuries and interests.
  • Trust law principles do not give ERISA plaintiffs constitutional standing to challenge alleged fiduciary self-dealing in cases where the plaintiffs have suffered no economic harm.
  • Without actual economic harm to a potential ERISA plaintiff (e.g., missed pension payments), there is no direct injury in fact.  Although it is possible that a fiduciary breach involving plan investments in a defined benefit plan could result in financial harm to a participant in the future (by increasing the risk that the plan might terminate with insufficient assets to pay participants’ benefits), this risk is too speculative to create constitutional standing.
  • An alleged violation of a participant’s statutory right to have a defined benefit plan operated in accordance with ERISA’s fiduciary requirements is not sufficient to constitute an injury in fact for purposes of Article III constitutional standing.  The court held that the plaintiffs were conflating the concepts of statutory standing and constitutional standing, and that courts “have subject matter jurisdiction over ERISA claims only where the appellants have both statutory and constitutional standing.”  Slip Op. 19 (emphasis in original).

The Fourth Circuit panel’s unanimous decision gives defined benefit plan fiduciaries welcome confirmation that their investment decisions should not be subject to challenge by participants who have experienced no direct financial injury.