Standing alone, this decision would appear to have no effect on public DB pension plans. They are not regulated by ERISA and generally, litigants and judges in the public pension space have not relied upon decisions from the ERISA field. However, some of the majority's reasoning should give pause to those of us who practice in the public pension space.

Three rulings within the majority opinion stand out. First, the majority rejected benefit recipients' argument that they had standing based on trust law. The Court concluded that "participants in a defined-benefit plan are not similarly situated to the beneficiaries of a private trust or to the participants in a defined-contribution plan." 140 S. Ct. at 1619.

The Court reached this conclusion by reasoning that DB plan beneficiaries receive a set benefit and do not stand to gain if funds are recovered by the trust. In other words, they had no interest in the outcome of an attempt to claw back money.

The Court reasoned that trust law, which would afford recipients standing to recover monies for the trust, did not apply to private DB plan benefit recipients.

This ruling came despite the plan document stating that the assets were held in trust for the benefit recipients and multiple statements in past cases that trust law applied to ERISA cases.

Similarly, public DB plan documents — which are often either state law or municipal ordinances — include language stating that the assets are held in trust for the benefit recipients.

However, if the U.S. Supreme Court can overlook similar ERISA case law to find trust law does not apply to private DB plans, it is possible, and perhaps even likely, that a future court will rule the same in relation to public plans.

Such a ruling would mark a significant legal change for public DB plans.

Numerous courts across the country have concluded trust law principles apply to the analysis of the rights and remedies of public DB plan members and the legal obligations of public DB plans.

Trust law principles underpin how courts have analyzed the fiduciary duties owed by public DB plan trustees to benefit recipients, for example. Without the trust law backstop, there would be significant uncertainty about how public DB plans were required to act.

The governing plan document would certainly provide some guidance, but courts have consistently looked to trust law to interpret general plan document language and that guidance would now be gone.

The Court next reasoned that beneficiaries have no equitable or property interest in the plan because private DB plan beneficiaries do not receive the surplus if a plan winds down and there is money remaining to distribute.

The dissent, authored by Justice Sotomayor, pointed out that the plan document stated the assets were held in trust for the benefit recipients, placing the majority's ruling on this issue in conflict with the plan document, trust law and ERISA.

This aspect of the decision could also have a significant impact on public DB plans. Public DB plans are funded by employer and (often) employee contributions, with the employer being the state or a local governmental entity. Once those contributions have been made, the funds are considered to be the property of the plan, not the employer (i.e., state or local government) or employee.

This means the funds are no longer the property of the government and cannot be seized or borrowed by the government when there is a perceived need for the money. This has been litigated in multiple jurisdictions when a government facing a funding crisis attempted to borrow money from the state pension plan.

Courts have rebuffed these attempts to treat public pension plans as a governmental piggy bank and many plan documents state that the DB plan funds are the property of the pension plan and not the state. This ruling may empower state and local governments, as COVID-19 wreaks havoc on their budgets, to consider raiding public DB plans, citing this opinion as the justification for their actions.

The Court separately rejected the argument raised by amici that plaintiffs have standing to sue if plan mismanagement substantially increased the risk that the plan would fail.

The Court said the plaintiffs had not made the allegation. It went even further to state that the bare allegation would not have satisfied the injury-in-fact requirement because private pensions are backed by the Pension Benefit Guaranty Corporation and thus those recipients could still expect to be paid.

This ruling, like the first one, would cut both ways for public DB plans if applied to them. On one hand, it would further insulate public DB plans from suits by benefit recipients because public plans have considerable financial reserves and their employers are state and local governments with the ability to access further funds to pay a recipient's defined benefit.

This test would likely mean a benefit recipient would have little or no ability to show that financial mismanagement in a public DB plan would lead to a risk that the plan would fail and the benefit recipient would not be paid.

At the same time, that insulation from liability could prove problematic for a public DB plan. Just as the government/plan sponsor could eye the public plan's funds as a source of available money, so too the government could attempt to force a plan to invest its considerable assets in the government's own pet projects rather than allowing the plan to pursue investments that maximize its investment return.

The public DB plan (or benefit recipients attempting to sue on the plan's behalf) could lose its ability to resist pressure to make politically motivated investment decisions if courts deem mismanagement is not actionable absent a risk the plan would fail.

ERISA DB case law may continue to exist in a legal universe separate from that of public DB plan case law. If so, the Thole decision will have little to no effect on the public plan case law that has developed over the last century.

However, if litigants within the public DB plan space succeed in importing the Thole decision, the results would be significant.

It could further insulate public DB plans from liability for claims filed by benefit recipients while at the same time undercutting the legal protections public DB plans have relied on to protect their trust funds and investment decisions from employer—that is, political—interference.

At a time when state and local governments are scrambling to find new revenue sources and close budget deficits, the Thole decision could serve to undermine, rather than strengthen, public DB plans.

Caleb Durling is a trial lawyer at Fox Rothschild LLP who focuses his practice on complex civil and commercial litigation and appeals. He can be reached at [email protected].