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U.S. Supreme Court to Decide on Breaches of Fiduciary Responsibilities for an Over-Funded DB Plan

Recently, two court cases involving fiduciaries of two large pension plans, U.S. Bank and DowDuPont, have moved through the court system. In the case of U.S. Bank, which will be heard by the U.S. Supreme Court in October, the courts will decide whether pension plan participants can sue for fiduciary breaches even if a plan is currently overfunded and participants have not experienced monetary losses.

In this case, the plaintiffs allege that the fiduciaries, who were tasked with running the $2.8 billion plan, failed to properly discharge their fiduciary responsibilities as the plan lost $1.1 billion during the market crash of 2008. Specifically, they are accused of violating their ERISA fiduciary duties, including the “duty of prudence” and “duty of loyalty”, by investing the entirety of the plan’s assets in equity securities, thus failing to prudently diversify plan investments and introducing undue risk to the plan. Furthermore, according to the petition, U.S. Bank imprudently allocated 40% of the assets to a proprietary mutual fund managed by FAF Advisors, a subsidiary of U.S. Bank.

The case, which began in 2013, was earlier dismissed by the Eighth Circuit Court of Appeals on the grounds that the plan is now in a healthy and overfunded financial condition and that participants had not suffered any financial losses. However, the government, on the recommendation of the U.S. Solicitor General, has filed a brief arguing that a fiduciary breach of duty has standing under ERISA regardless of whether it causes a pension plan to lose money or not.

In the case of DowDuPont, the plaintiffs allege that plan fiduciaries violated their fiduciary responsibilities by shifting the underfunded liabilities of a nearly $30 billion, 120,000 participant plan to a newly formed entity at the time of the company merger. That entity, Corteva Agriscience, was formed in 2017 as a result of a merger between Dow Chemical Co. and E.I. du Pont de Nemours Co. to create the largest chemical conglomerate in the world. The complaint also suggests that the company used artificially high interest rates to understate the plan’s liabilities and to reduce plan contributions. The plaintiffs are seeking class-action status, claiming breaches of fiduciary responsibility, creation of prohibited transactions and multiple failures to follow plan documents.