Does the Supreme Court’s Analysis in Thole v U.S., Bank, N.A. Apply to Welfare Benefit Plans?

In Thole v. U.S. Bank, N.A., 140 S Ct. 1615 (2020), the Supreme Court, in a five to four decision authored by Justice Kavanaugh, held that participants in an ERISA defined benefit pension plan did not have standing under Article III of the U.S. Constitution to bring breach of fiduciary duty claims against defined benefit plans fiduciaries based on past investment losses.

In doing so, the Court contrasted the rights of participants in defined benefit plans who receive fixed regularly benefit payments funded by employer and employee contributions from participants in defined contribution plans whose benefits are directly tied to the value of the assets in their individual plan accounts from time to time. In the former case, the risk of loss is borne by the employer, not the participants and participants do not have Article III standing. In the latter, the participants bear the risk of loss and such losses can support Article III standing. See, La Rue v. De Wolff, Boberg, & Associates, 552. US 248 (2008).

To have Article III standing, a plaintiff must show (i) a personal injury in fact to the plaintiff, (ii) caused by the defendant, and (iii) that the injury would likely be addressed by the relief requested. The alleged injury in Thole was a loss of more than one billion dollars in plan value which caused the plan to be significantly underfunded. However, by the time the case reached the courts, through a combination of employer contributions and positive earnings, the plan was overfunded.

Based on the then current funding status of the plan, the Court found that the plaintiffs had not incurred any injury as a result of the prior plan losses and, therefore, the plaintiffs did not have standing to sue based on those losses. They had received all of the benefit payments to which they were entitled to in the past and, as the plan was fully funded at the time of the district court’s initial ruling, there was no significant risk that such payments would not continue in the future.

Recently, several courts have found that the analysis in Thole has equal import on cases brought by plan participants in ERISA governed welfare benefit plans against plan fiduciaries alleging fiduciary breaches. In each of these decisions, the courts held that welfare benefit plans were structurally analogous to defined benefit pension plans in ways that may preclude participants in such welfare plan from having Article III standing to bring claims against plan fiduciaries. This was because under such plans, like defined benefit pension plans, the participants have no beneficial interest in any of the assets of the plan, but rather merely have a right to receive future benefits under the terms of the plan. As a result, losses incurred by such welfare plans do not personally injure plan participants and such participants lack Article III standing to bring claims based on such losses.

The most recent example of such a case is Knudsen v. Met Life Group, Inc., 2:23-cv-00426 (D. N.J. 7/18/23). The plaintiffs in Knudsen participated in a medical benefit plan sponsored by Met Life for its employees. Historical participants in the medical plan paid roughly 30% of the costs of coverage and Met Life paid the balance.

Between 2016 and 2021, Met Life received roughly US$65 million in rebates from its pharmacy benefits manager that Met Life retained. The plaintiffs alleged that these rebates should have been used to reduce the plan costs paid by the participants and that Met Life breached its fiduciary duty by failing to apply the rebates to benefit plan participants.

Met Life filed a motion to dismiss alleging that the plaintiffs lacked Article III standing as they were not injured by how the rebates were used. Rather, the plaintiffs were seeking extra contractual benefits that they were not entitled to under the plan. As Met Life further noted, the plaintiffs had not alleged they had been denied benefits to which they were entitled or paid more that required under the terms of the plan with respect to the medical benefits they received. Finally, Met Life argued that the plan terms were clear that rebates belonged to Met Life and were not to be considered when calculating co-insurance or co-payment amounts.

In granting Met Life’s motion to dismiss, the district court relied principally on the Supreme Court’s decision in Thole finding that the “Plan in this case is analogous to a defined benefit plan that was at issue in Thole… Each year the premiums and benefits are fixed and do not fluctuate with the Plan’s profits or losses…Plan participants here have no legal right to the general pool of plan assets just like the plaintiffs in Thole…Hence any asserted injury to the Plan is not an injury to Plaintiffs themselves.” Thus, there was no Article III standing.

Shortly before the decision in Met Life was announced, the 9^th Circuit affirmed a similar district court holding in Winsor v. Sequoia Benefits & Insurance Services, 62 F. 4^th 517 (9th Cir. 2023). In Winsor, participants in an ERISA welfare benefit plan sued the manager of a fully insured Multiple Employer Welfare Arrangement (MEWA) in which their employer’s welfare plan participated for breach of fiduciary duty tied to commissions received by the manager and administrative fees paid to the insurers.

The MEWA combined the assets of more than 180 employer plans into a trust fund that acquired insurance for various benefits offered by the plans participating in the MEWA at large-group rates. The defendant managed the MEWA, selected the insurers and insurance offerings to the MEWA, negotiated the insurance rates, and set the costs charged to each participating employer by the MEWA. The defendant also received insurance commissions from the insurance companies for its brokerage services.

The plaintiffs filed the suit against the manager on behalf of their employer’s welfare plan alleging that the manager breached its fiduciary duty to their employer’s plan by retaining the insurance commissions (rather than using them to pay insurance premiums) and by approving high administrative fees paid to the insurers from the MEWA’s funds. Like in Met Life, the plaintiffs did not allege that they had not received benefits to which they were entitled under their plan or that that plan was not fully insured or that their employer had any obligation to use any reduction in the cost of the insurance coverage to reduce the employee’s cost share.

What the plaintiffs alleged was that they were injured by having to pay higher amounts for their coverage than they should have. In other words, if the commissions and administrative fees had been lower, their share of the cost of their employer’s plan would have been lower, even though setting the employee cost share was entirely up to their employer as sponsor of their welfare plan.

The District Court dismissed the complaint for lack of Article III standing based on the lack of any allegations in support of the inference that had the commissions or administrative fees been lower the plaintiffs would have paid less for coverage under their employer’s plan.

In affirming the lower court dismissal, the 9^th Circuit also relied principally on Thole and the analogous relationship between fully insured employer plans and defined benefit retirement plans.

“Here plaintiffs have not established that they have some equitable interest in plan funds that the plaintiffs in Thole lacked…Although the [MEWA] is not a defined benefit pension plan, it similarly provides a defined set of benefits as promised in plan documents. … The program is a large pool of money that is not divided into individual accounts. Plaintiffs do not own a beneficial interest that increase or decrease depending on the management of trust assets…. Unlike private trust beneficiaries, plaintiffs have not alleged that they are entitled to receive the funds held by the program. Instead, plaintiffs were contractually entitled to the insurance benefits that Sequoia agreed to purchase for them with the program’s funds – benefits they have received.”

Perhaps the earliest case reaching a similar result applying Thole in a welfare plan context is Gonzalez de Fuente v. Preferred Home Care of New York, LLC, 2020 WL 5994957 (E.D.N.Y. 10/09/20). The judge in this case actually stayed the litigation in February 2020 pending the Supreme Court’s decision in Thole, obviously recognizing the similarity between the defined benefit pension plan in Thole and welfare plans with fixed benefits at issue here. The Court then granted the defendants motion to dismiss based on a lack of Article III standing once the Supreme Court issued its opinion in Thole.

In summary, while some thought the dissent in Thole more persuasive than the majority opinion, Thole remains the law of the land and participants in defined benefit pension plans have a very high hurdle to establish Article III standing to bring claims against plan fiduciaries based on past investment losses. Moreover, the fact that participants in most welfare plans have no beneficial rights in any plan assets of such welfare plan, as is the case with defined benefit plans, suggests that treating welfare plans like defined benefit pension plans when analyzing whether plaintiffs have Article III standing seems entirely appropriate and likely to be followed by other courts in the future.

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