By: Mark Casciari and Chris Busey
Anyone who can spell ERISA knows the difference between defined benefit (DB) and defined contribution retirement plans. This distinction was again at the forefront of a recent U.S. district court decision.
In Palmason v. Weyerhauser Co., No. 11-0695 (W.D. Wash. Aug. 23, 2013), plaintiffs were participants in the defendant-employer’s defined benefit pension plan. They alleged that the plan adopted an alternative investment strategy that resulted in a loss of $2.4 billion in plan assets in 2008. Plaintiffs sought both legal relief, in the form of money, and equitable relief, in the form of injunctions.
Judge Robert S. Lasnik held that the plaintiffs did not have standing to pursue their claims for money damages.
Plaintiffs were required to show a concrete and particularized injury that was not merely speculative in order to have a right to the money damages they demanded. This means that they must have shown that the alleged breaches “created an appreciable risk that the defined benefits would not be paid.” The court concluded that plaintiffs failed to meet their burden. The court said, after considering expert testimony, that the plan was underfunded by at most 1.5%, and that the alleged fiduciary breach “posed no threat to [plaintiffs’] present or future benefit payments.”
Plaintiffs’ demands for equitable relief were another story. The court held that the plaintiffs had standing to bring equitable claims against the plan fiduciaries because trust law allows an equitable remedy even where the beneficiary has suffered no personal loss or injury. A “bare allegation of breach of fiduciary duty” alone does not confer standing for equitable claims, but plaintiffs did more than make a “bare” allegation — they alleged that defendants failed to diversify the plan’s investments as required by ERISA. The plaintiffs sought only injunctive relief to remedy their equitable claims, and did not allege, for example, that the fiduciaries used plan assets to profit personally. The case thus did not address the scope of monetary equitable relief.
This case is important because it limits standing to seek money damages in the DB context to those cases where the plan is severely underfunded, in the absence of allegations that plan fiduciaries unlawfully removed or profited from plan investments for personal gain.