Court Says Participant in Overfunded DB Plan Has no Standing

In affirming a district court’s dismissal of the case in a 2-1 decision, the majority of the 8 ^th Circuit panel agreed that its precedent in Harley v. Minnesota Mining & Manufacturing Co. controlled, and granted AEGON’s motion for summary judgment.

In Harley , the appellate court said the plan’s surplus was sufficiently large that the “investment loss did not cause actual injury to plaintiffs’ interests in the Plan,” and ruled that “a contrary construction [of § 1132(a)(2)] would raise serious Article III case or controversy concerns,” because it would “permit[] participants or beneficiaries who have suffered no injury in fact” to bring an action to enforce Employee Retirement Income Security Act (ERISA) fiduciary duties on behalf of the plan.

As in the prior ruling, the majority held that plan participants “would if anything be adversely affected by subjecting the Plan and its fiduciaries to costly litigation.”

According to the opinion, all parties agreed that at the time Randal E. McCullough filed his complaint, and at all times from 2001 to 2006, the plan was “substantially overfunded,” according to actuarial valuation reports of the plan’s assets and liabilities. The parties also agreed that plan never failed to pay benefits owed to participants or beneficiaries, and that AEGON had no intention to terminate the plan. In light of these facts, AEGON argued that under Harley , McCullough lacked standing to assert his claims.

McCullough filed the suit against AEGON and various other defendants alleging that the defendants breached their fiduciary duties under ERISA by causing the plan to invest in funds offered by AEGON subsidiaries and affiliates and to purchase products and services from such affiliates and subsidiaries, resulting in the payment of fees “that were higher than the norm.” McCullough also alleged that this conduct violated 29 U.S.C. § 1106, which prohibits certain transactions between the plan and fiduciaries and between the plan and parties in interest.

McCullough sought a refund to the plan of “all fees paid to AEGON Subsidiaries and Affiliates by the Plan[], including disgorgement of profits,” as well as “equitable restitution and other appropriate equitable monetary relief.” He also sought an injunction against defendants from engaging in such activities.

While the majority of the appellate panel found for AEGON, dissenting Judge Bye agreed with DB plan participant McCullough's contention that the court's prior decision in Harley was no longer good law in light of the U.S. Supreme Court's 2008 decision in Sprint Communications Co. v. APCC Services Inc., 128 S. Ct. 2531 (2008). The case dealt with the standing of assignees to bring legal claims even when they have not suffered an injury-in-fact, which is required for standing under Article III of the U.S. Constitution.

McCullough argued that Sprint allows for participants in overfunded defined benefit plans to bring ERISA fiduciary breach claims even if the participants themselves do not have Article III standing because they are bringing the claims on behalf of the plan. Bye agreed, contending that 29 U.S.C. § 1132(a)(2) plainly and unambiguously permits such an action, as it says "A civil action may be brought . . . by the Secretary, or by a participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title."

Bye added that the Supreme Court recognized the very purpose for allowing beneficiaries and fiduciaries to sue on behalf of the plan under § 1132(a)(2) is "the common interest shared by [participants and beneficiaries] in the financial integrity of the plan."

The opinion inMcCullough v. AEGON USA Inc. can be found at http://www.ca8.uscourts.gov/opns/opFrame.html .