ERISA-Fourth Circuit Holds That Plaintiffs Have Standing To Pursue Claim For Disgorgement Of Profits

In Pender v. Bank of America Corp., No. 14-1011 (4th Cir. June 8, 2015), an employer was deemed to have wrongly transferred assets from a pension plan that enjoyed a separate account feature (i.e., a 401(k) plan) to a pension plan that lacked one (i.e., a defined benefit plan). Although the transfers were voluntary and the employer guaranteed that the value of the transferred assets would not fall below the pre-transfer amount, an Internal Revenue Service audit resulted in a determination that the transfers nonetheless violated the law (specifically, the anti-cutback rule of Code section 411(d)(6) and ERISA section 204(g)(1)) which protects the separate account feature). The plaintiffs, who held such separate accounts and agreed to the transfers, brought suit under ERISA and sought disgorgement of, i.e., an accounting for profits as to, any gains the employer retained from the transaction. The district court dismissed their case, holding that they lacked statutory and Article III standing. The plaintiffs appeal.

In analyzing the case, the Fourth Circuit Court of Appeals (the “Court”), reversed the district court’s decision, finding that the plaintiffs have both statutory and Article III standing to pursue their claim for disgorgement. The Court said that, to show statutory standing, the plaintiffs must identify the provision of ERISA that entitles them to bring the claim for the relief they seek. In this case, the Court found that the plaintiffs may bring this suit under section 502(a)(3) of ERISA, since the suit is for “appropriate equitable relief” for the violation of the ERISA anti-cutback rule. Consequently, the plaintiffs have statutory standing.

As to the Article III standing, the Court said that there exist three “irreducible minimum requirements” for Article III: (1) an injury in fact (i.e., a concrete and particularized invasion of a legally protected interest); (2) causation (i.e., a fairly traceable connection between the alleged injury in fact and the alleged conduct of the defendant); and (3) redressability (i.e., it is likely and not merely speculative that the plaintiff’s injury will be remedied by the relief plaintiff seeks in bringing suit). The Court found that the plaintiffs met these minimum requirements, due to the employer’s retention of profits at the plaintiff’s expense (satisfying the injury and cause requirements) and since the court could grant effective relief (satisfying the redressability requirement).

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