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Defined Benefit Plan Court Rulings: NYC Pension Fossil Fuel Divestment Case Dismissed
Primarily relying on the U.S. Supreme Court's 2020 opinion in Thole v. U.S. Bank, the New York State Supreme Court recently dismissed Wong v. New York City Employees' Retirement System. The opinion held that the Wong plaintiffs were not at risk of current or future monetary loss due to alleged mismanagement because they are similarly entitled to a fixed monthly defined benefit distribution, thereby providing a valuable example of how Thole may find practical application to public pension plans in state courts.
By: Tony Roda & Kimber Y. Brewer, Williams & JensenOn June 1, 2020, the U.S. Supreme Court dismissed Thole v. U.S. Bank in a 5-4 opinion, holding that defined benefit (DB) plan participants do not have proper authority under the law to bring a breach of fiduciary duty claim where the participants do not have a “concrete” financial stake in the lawsuit.
Thole involved an ERISA plan, not a public pension plan governed by the federal Internal Revenue Code and applicable state and local law. However, on July 3, 2024, the New York State Supreme Court dismissed Wong v. New York City Employees' Retirement System for lack of standing, thereby providing a valuable example of how Thole may find practical application to public pension plans in state courts.
To establish standing, a plaintiff generally must show that the defendant's actions have caused the plaintiff to suffer a specific loss or harm to an extent requiring judicial intervention. In Thole, the plaintiffs brought a class action lawsuit under ERISA against several parties, including U.S. Bank, for allegedly mismanaging the DB plan in which they are participants. In this case, the plaintiffs needed to show that they suffered a concrete injury as a result of the defendants' purportedly inappropriate investment decisions, presently or in the future.
A crucial factor impacting the Court's decision was that the plan in question was not a defined contribution plan (DC) or a trust, but instead was a DB plan. The overall value of the payments distributed to participants by a DC plan or private trust typically fluctuate in direct relation to investment decisions made by the fiduciaries. Conversely, in general, participants in a DB plan receive a fixed distribution for life that does not change despite successful or ineffective investment choices.
Applied to the circumstances in Thole, the pension plan participants were not at risk of any current or future financial loss as a result of any alleged mismanagement on the plan fiduciary's part because they would receive the same monthly pension payments regardless of the litigation's outcome. In short, the plaintiffs were unable to show an adequate financial stake beyond their ERISA statutory right to bring a claim.
In Wong, the pension plans at issue were also DB plans and the plaintiffs made several standing arguments analogous to those in Thole. In this era of full-throated attacks on any decisions using environmental, social, or governance (ESG) factors in investment decisions, the underlying claims made by the plaintiffs were that the fiduciaries who made the investment decisions for the three New York City pension funds – the New York City Employees Retirement System, the Teachers' Retirement System of the City of New York, and the Board of Education Retirement System of New York – breached their fiduciary duties of loyalty and prudence to plan participants by divesting from oil and gas industry equities.
Primarily relying on Thole, the New York State Supreme Court opinion held that the Wong plaintiffs were not at risk of current or future monetary loss due to alleged mismanagement because they are similarly entitled to a fixed monthly DB distribution. As such, the plaintiffs in Wong also were unable to establish the requisite concrete loss or injury.
The Wong plaintiffs presented arguments to distinguish their circumstances from Thole in order to establish standing, but these arguments failed. Although state courts are not required to comply with federal standing requirements, New York state law has an equivalent requirement, and Wong did not meet that standard. Also, the New York State Supreme Court did not apply trust law to Wong for the same reasons as Thole, i.e., DB pension distributions are less like disbursements to trust beneficiaries and more like a contract. It dismissed the remaining arguments for being speculative, including that defendants would be able to avoid judicial review if the plaintiffs were not granted standing by this specific court in this lawsuit. Finally, a DB plan's theoretical inability to fulfill its payment obligations was found equally insufficient to establish a legal injury.
As I've mentioned in prior articles, ESG will continue to play out in the courts, in the halls of Congress, and in the Executive Branch agencies for years to come. The New York lawsuit at its core was motivated by anti-ESG thinking, but fiduciary breach suits are nothing new to the judicial system. I expect to see more cases in this vein brought in the state court system in the next few years, despite the strong rulings on lack of standing in the DB context thus far.
Tony Roda is a partner at the Washington, D.C. law and lobbying firm Williams & Jensen, where he specializes in legislative, regulatory, and fiduciary matters affecting state and local pension plans. He represents the National Conference on Public Employee Retirement Systems and state-wide, county, and municipal pension plans in California, Colorado, Georgia, Kentucky, Ohio, Tennessee, and Texas. Tony has an undergraduate degree in government and politics from the University of Maryland, J.D. from the Catholic University of America, and LL.M (tax law) from the Georgetown University Law Center.
Kimber Y. Brewer is a Legal Intern at Williams & Jensen. She is currently a J.D. candidate at American University Washington College of Law.
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