Would the Supreme Court rather stand by its strict standing doctrine than hold fiduciaries accountable for gambling Grandma’s retirement gains away? It seems the answer is yes.

In its June 2020 decision, Thole v. U.S. Bank, the Court held that beneficiaries of a defined-benefit retirement plan lack Article III standing to bring a claim for breach of fiduciary duty, even when improper investment by the plan’s asset managers results in underfunding. In other words, yes: fiduciaries of retirement plans are free to make risky, fiscally irresponsible investments using pension resources with no repercussion, even if the plan loses value. Because U.S. Bank repaid the more than $748 million in lost funds to the plan before the case went to trial, the Court ruled that the plaintiffs—retirees who participate in the plan—did not suffer an injury-in-fact. This opinion glosses over the fact that historically, breach of fiduciary duty without more provided the basis for remedial action in court. Now, this is no longer the case. What’s worse is that the Court’s holding applies not only to suits for damages but also to claims for injunctive relief—a scary implication for those who witness a pattern of financial negligence in the handling of their defined-benefit plans.

If the retirees in this case ended up getting the full amount of their pension, despite fiduciary mismanagement, why should we care whether the Court holds the fiduciaries responsible? No harm, no foul, right? This is essentially the argument the majority makes, finding that the plaintiffs did not actually suffer any injury. But the majority is wrong to deny the plaintiffs standing on this basis. The retirees were saved by U.S. Bank’s ability to make up the deficit caused by poor financial decision-making. What happens if an employer doesn’t have $748 million lying around to clean up the mess made by pension plan managers? While the Pension Benefit Guarantee Corporation (PBGC)—a federal agency created by ERISA that ensures an individual’s benefits—is supposed to compensate individuals whose plans are underfunded, a dramatic economic downturn coupled with increased instances of underfunded plans could result in even the PBGC’s inability to pay.

These aren’t just hypothetical worries of a law student who loves her grandma. Attorneys at Cleary Gottlieb predict that asset managers who have previously opted not to take on the increased risk of litigation involved in managing these types of plans will be more willing to manage defined-benefit plans, like those at issue in Thole, now that the Court has essentially forestalled liability. This would place the approximately $3.2 trillion in defined-benefit plans nationwide at risk of the same kind of negligent mismanagement at issue in this case. But if that happens, can’t Grandma sue? Yes, but Grandma shouldn’t have to wait until her retirement earnings are already gone—or substantially depleted—to hold the account managers responsible. Think about the time, money, and mental toll that such litigation would take on Grandma in order to recuperate those earnings. Justice delayed is justice denied.

According to Thole, Grandma cannot get into court based on these very real concerns to stop plan managers from continuing risky investing in the future. Since U.S. Bank repaid the funds, says the majority, the plaintiffs cannot satisfy the injury-in-fact requirement. At bottom, this entire case is premised on the Court’s strict interpretation of standing doctrine’s injury-in-fact requirement. While the fiscal outcomes of Thole have been widely speculated, less has been written about the constitutional underpinnings of the case. That’s probably because the majority and the dissent take standing doctrine as a given limitation and instead focus their arguments on whether the defined-benefit plans at issue in the case are more analogous to a trust or to a contract. Let’s take a closer look at the Court’s underlying assumption.

Article III standing, also known as Constitutional standing, is not the historically compelled doctrine the Court holds it out to be. Academics have challenged the legitimacy of standing doctrine as a barrier to individual rights. As Professor James Pfander points out, standing law was not introduced until the twentieth century, as a response to the judicially activist Lochner Court. The Court did not articulate its injury-in-fact requirement until the 1970 case, Association of Data Processing Organizations v. Camp.

All this to say, the basis for the Thole court’s decision—that the plaintiffs lack standing—is arguably not constitutionally compelled. As a result, the Court’s denial of court access to the plaintiffs and others who are similarly situated seems to be based on judicial discretion rather than on necessary legal principles. If the Court were inclined to reexamine how strictly it applies standing doctrine, it could have recognized an injury in this case without arguing about whether trust law or contract law apply. After learning that their plan managers lost almost $750 million of retirement funds, the plaintiffs had legitimate concerns about the stability of their retirement funds. That should count as an injury. Again, Grandma now has to worry her retirement funds may be gambled away. She shouldn’t have to live with that uncertainty. On these faulty premises, the Court erects a barrier to justiciability for individuals seeking to enforce otherwise protectable rights and avoid harms that can and should be avoided, as here. Irresponsible pension management that results in lost pension funds should not go unpunished.

Since the Court thus far refuses to relax its strict application of its standing doctrine, it has to rely on existing frameworks to define what constitutes an injury. Here, that meant deciding whether the defined-benefit plans in question were more like trusts or contracts. This is where the Thole majority made another misstep. The Court erred in distinguishing defined-benefit programs from trusts—although the dissent doesn’t quite get this right either. Defined-benefit plans distribute a fixed dollar amount to beneficiaries on a consistent basis, such as once a month. The amount distributed to participants does not vary based on the total account value. Any assets above and beyond what the beneficiaries are entitled to go to the employer. The Employee Retirement Income Security Act (ERISA) explicitly refers to defined-benefit plans as trusts, which are relationships in which a trustee manages the assets of a trustor by making investment decisions.

Traditionally under the common law, fiduciaries of trusts have been held liable for mismanagement of funds. In other words, if the Court decided that the defined-benefit plans are trusts, the plaintiffs would have standing to sue because there is historic precedent that mismanagement of a trust alone constitutes an injury. But this is not how the majority ruled. Unlike a trust, said the majority, defined-benefit participants are entitled to an agreed-upon payment of funds accumulated in their accounts. The majority likened this to a contract because the disbursements the beneficiaries receive do not fluctuate based on the decisions of the plan managers as they would in a trust. Thus, contract law rather than the common law of trusts should rule. Under contract law, the plaintiffs have no equitable or property interest in the responsible management of their plans, so long as they end up with the funds to which they are entitled. Since the retirees ended up with those funds in this case, the Court found they could not bring a claim.

To this point, the majority and dissent are two ships passing in the night: the majority argues the defined-benefit plan is analogous to a contract while the dissent argues it is a trust. The reality is that the nature of the defined-benefit plan does not perfectly fit either a trust or a contract. Because the defined-benefit account funds must be distributed in a certain amount at a certain time to participants, they lack the versatility normally attributed to trusts. However, unlike a contract, the account managers do not reap any benefits from their relationship with the participants. Any surplus the plan makes based on the managers’ investing goes to the employer, not the plan managers themselves. The quintessential backbone of a contract is consideration. In a defined-benefit plan, though, the plan managers do not “get” anything. As in the case of a trust, they are responsible for simply managing the assets which have been entrusted to them by the participants.

Since we don’t have a set of guidelines that govern pseudo-contract-trusts, the Court has to pigeonhole defined-benefit plans into one framework or the other. Which should the Court choose? They should analogize to the framework which is set up to protect parties from the risks unique to defined-benefit plans. The risk of harm lies with the managers of the defined-benefit account. They are the ones with the power to lose the funds, should they make risky, or even downright illegal, investments with the assets. ERISA seems to recognize this allocation of responsibilities in characterizing defined-benefit plans as trusts. In so doing, ERISA aims to protect the assets in defined-benefit plans, and thereby protect the plan’s participants, by dedicating to them a right of action.

Contract law’s remedial structure is different because the risks of a breach are equally felt by both parties. Here, because plan managers do not benefit from managing the plan, they also do not have anything to lose if they mismanage it. The risk of financial loss inherent in defined-benefit plans is faced solely by the beneficiaries—the retirees—similarly to the one-sided risk faced by trustees. As such, the defined-benefit plans should be treated as a trust for purposes of liability. The Thole Court’s decision to the contrary signals a departure from ERISA’s typical basis in the common law of trusts. In this way, even though the defined-benefit plan is distinguishable in some ways from a trust, the ways in which it is analogous are more significant than the ways in which it is like a contract.

This convoluted exercise of trying to classify defined-benefit plans as a contract or as a trust ultimately could have, and should have, been avoided by a more lenient application of standing. However, based on the Court’s more recent standing applications from the October 2020 term, it continues to remain faithful to its doctrine. If the Court insists on enforcing its standing requirement, it should not apply it so strictly that it limits plaintiffs’ ability to enjoin prohibitive conduct. Here, the right to ensure responsible management of a person’s retirement funds is one the Court should enforce to the benefit and protection of the participants, the employer, and the federal government, which may have to pay to make up for underfunded accounts. In essence, the Court shouldn’t use standing doctrine to block Grandma’s access to court and stop her from holding irresponsible fiduciaries liable before she loses her retirement funds.

Summer Zofrea is a JD candidate at Northwestern Pritzker School of Law and is the Symposium Editor of Volume 116 of the Northwestern University Law Review.