Compliance January 19, 2016

Overfunding Makes Challenge to DB Plan Management Moot

In the years following the filing of a lawsuit against U.S. Bank, it has made changes to its DB plan investing practices that have resulted in the plan being overfunded.
Reported by

A lawsuit filed by participants in U.S. Bank’s defined benefit (DB) retirement plan has been dismissed as moot because the plan is now overfunded. 

Plaintiffs in the case challenged U.S. Bank’s management of its DB plan from September 30, 2007, to December 31, 2010. They challenged the bank’s adoption of a risky strategy of investing plan assets exclusively in equities and its continued pursuit of that strategy in the face of a deteriorating stock market, the bank’s investment of plan assets in the bank subsidiary FAF Advisors, and FAF Advisors’ actions with regard to a securities lending portfolio. The plaintiffs seek to recover plan losses, disgorgement of profits, injunctive relief, and/or other relief under the Employee Retirement Income Security Act (ERISA). 

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

The U.S. District Court for the District of Minnesota previously dismissed the 100% equities strategy allegations and granted summary judgment for U.S. Bank on the securities lending program claims, but held that the affiliated funds allegations survived in part. The court found that these allegations adequately alleged an injury in fact: that as measured by ERISA’s minimum funding requirements, “the plan lacked a surplus large enough to absorb the losses at issue.” 

However, in the current court opinion, U.S. District Judge Joan N. Ericksen, noted that the plan is now overfunded by ERISA measures, and citing other court cases, she determined that the case is moot because the issues presented are no longer “live” and the plaintiffs lack a legally cognizable interest in any outcome. In addition, she found it is impossible to grant any effectual relief now that the plan is overfunded. 

NEXT: No expectation for misconduct to continue

Ericksen cited a 3rd U.S. Circuit Court of Appeals decision that said allowing participants in an overfunded plan to pursue their claims "would not advance ERISA's primary purpose of protecting individual pension rights, because the pension rights of such plaintiffs are fully protected, and would if anything be adversely affected by subjecting the plan and its fiduciaries to costly litigation."

However, Ericksen noted that where the defendant initiates an event or events that might moot a case, the defendant bears a burden under what is called the "voluntary cessation" exception to mootness of showing that it is absolutely clear the allegedly wrongful behavior could not reasonably be expected to recur. Since the case was filed, U.S. Bank abandoned its 100% equities investment strategy and "meaningfully began to diversify into asset classes other than equities," the opinion said. In addition, the bank sold FAF Advisors in 2010 and "ceased to use parties in interest to manage a significant portion of the plan's assets."

Ericksen found that the plaintiffs offered nothing but speculation that the alleged misconduct will resume, and concluded their concerns about U.S. Bank’s potential future misconduct are "too conjectural or hypothetical to present an actual controversy" and cannot save the case from mootness now that the plan is overfunded.

«