Participant Fails to Show Harm in Retirement Plans Acquisition

In a case in which Siemens Corporation transferred retirement plan obligations to the acquirer of one of its business divisions, an appellate court found the plaintiff did not allege an injury in some counts and failed to state a claim in one count.

The plaintiff worked for Siemens for 27 years and participated in several retirement plans governed by the Employee Retirement Income Security Act (ERISA): two defined benefit (DB) plans and two defined contribution (DC) plans. After the plaintiff’s employment at Siemens concluded, Siemens sold one of its business divisions to Sivantos, Inc., and as part of the sale, Siemens transferred to Sivantos the obligation to pay the plaintiff’s benefits.

Counts one through five of the complaint were as follows: (1) breach of fiduciary duty, (2) engaging in a prohibited transaction, (3) declaratory judgment to enforce rights, (4) declaratory judgment to recover benefits, and (5) failure to provide information. Count six was a promissory estoppel claim based on the allegation that Siemens had promised the plaintiff it would be responsible for paying his pension benefits. He alleged that he was injured because he would not have invested in the plans if he had known they would be transferred; the transfer “substantially increased [his] risk of loss;” an insurance policy and a trust meant to protect participants in the event of default were nonexistent or insufficient; some DC investment options were no longer available after the transfer; and some of the new investment options “charged considerably higher management fees” and “generated less return than the investment vehicles [he] had chosen through Siemens.” The plaintiff did not allege that Sivantos had failed to pay him any benefits he was owed.

Siemens filed a motion to dismiss, which a U.S. District Court granted. It ruled that the plaintiff lacked Article III standing to assert all of his claims, and in addition, he had not exhausted administrative remedies for his claims relating to the DC plans. The 3rd U.S. Circuit Court of Appeals affirmed dismissal of the suit, although on some points for different reasons.

The plaintiff first argues that the District Court misapplied the dismissal standard because it disregarded his allegations, did not assume their truth, and considered facts outside the complaint. The appellate court found this not to be true.

DB plan claims

The 3rd Circuit noted that counts one through four pertained to both the DB and DC plans, but the District Court correctly ruled that Krauter lacked standing to assert these claims with regard to the DB plans. According to its opinion, standing requires: (1) “an injury in fact,” which is “an ‘invasion of a legally protected interest’ that is ‘concrete and particularized,’” (2) “a ‘causal connection between the injury and the conduct complained of,’” and (3) “a likelihood ‘that the injury will be redressed by a favorable decision.’” The appellate court agreed with the District Court conclusion that the plaintiff did not allege a concrete injury in fact because Siemens’ actions did not harm him. Instead, the complaint “simply hypothesizes that he would incur harm in the future if Sivantos’ actions lead to missed payments,” an injury the lower court ruled “merely speculative and not concrete.”

According to the appellate court, on appeal, the plaintiff fails to show that these conclusions are erroneous with regard to his DB plan claims, and it said its precedent finds that the risk of future negative effects on benefits is too speculative to confer standing.

The 3rd Circuit found the plaintiff’s pleading of monetary and non-monetary harms consists of a list of his alleged injuries accompanied by his bare assertion that they are injuries in fact. However, the plaintiff cites no authorities supporting his view. “His allegation that he would not have participated in the plans had he known Siemens might transfer them is, as Siemens points out, just another way of expressing fears about a possible future default. His allegation that Siemens breached its fiduciary duty by acting ‘in furtherance of its own . . . interests, and against [his] interests,’ lacks factual specificity and is conclusory. His allegations about discontinuance of insurance and failure to fund a rabbi trust (both of which would pay benefits upon a default) are too speculative: Krauter would only be harmed by their absence if there were to be a default. Krauter’s third argument is that increased risk of future harm confers standing. Here again, our precedent is conclusive: a risk of future adverse effects on benefits is not an injury in fact,” the appellate court’s opinion says.

DC plan claims

The 3rd Circuit also said the District Court correctly dismissed counts one through four insofar as they pertained to the DC plans. It affirmed the District Court’s ruling, but in part for different reasons. The plaintiff alleged that after the transfer, some deferred compensation plan investment options were no longer available and fees and costs were higher. The court said the higher fees may have been accompanied by higher returns. “Although we draw reasonable inferences in [the plaintiff’s] favor, we do not interpolate allegations that are not in the complaint. On the complaint’s face, [the plaintiff] has not alleged that he was injured by the changes to the deferred compensation plan. Therefore, he lacked standing to assert Counts One through Four insofar as they pertained to that Plan,” the appellate court wrote.

The plaintiff’s allegations about the 401(k) plan differ from his allegations about the deferred compensation plan. He alleged that after the transfer from Siemens to Sivantos, his 401(k) funds were moved into investments that “charged considerably higher management fees” and “generated less return.” The appellate court noted that diminished returns in a DC plan are a concrete injury in fact, and because he alleged that the higher fees and lower returns damaged him before he rolled over his account to an IRA, he pled concrete injury in fact with regard to counts one through four related to the 401(k) plan.

However, the court turned to Renfro v. Unisys Corp., in which the plaintiffs alleged that the defendants breached their fiduciary duty under ERISA because they “inadequately selected a mix and range of [401(k)] investment options.” The Renfro plaintiffs pleaded facts including the kinds of options available and the funds’ risk and fee profiles. The plaintiff suing Siemens did not allege what investment options were available after the transfer or what fees they charged. Nor did he allege how, specifically, the pre- and post-transfer options differed.

“Renfro provides the road map for how to plead his claims, but [the plaintiff] ‘provided nothing more than conclusory assertions that [the fiduciary] breached its duty to prudently and loyally select and maintain the plan’s . . . investment options.’ Thus, he failed to state a claim in Counts One through Four with regard to the 401(k) Plan,” the appellate court found.

It also ruled that the plaintiff lacks standing on his failure to provide information claim, and his request for injunctive relief does not cure the problem. According to the appellate court, the plaintiff has not properly alleged a violation of an ERISA statutory duty. The plaintiff does not specify what provision of ERISA requires Siemens to provide him with its purchase and sale agreement with Sivantos, documents it relied on leading up to the sale, or documents demonstrating compliance with unspecified “safeguards.” The 3rd Circuit concluded that the plaintiff was not injured by Siemens’ decision not to provide documents that ERISA did not require it to provide.