First Rulings on Pension Risk Transfer — ERISA Class Actions Reach Opposite Conclusions on Article III Standing

Seyfarth Synopsis:  The first two district court opinions deciding whether plaintiffs have Article III standing to challenge pension risk transfers have reached opposite conclusions.  One case will proceed to discovery, and the other has been dismissed without leave to amend.  Many other motions to dismiss are pending in other courts and it is too early to tell which view will prevail; more rulings are expected soon.

For context, in a defined benefit pension plan, upon retirement, participants are eligible to receive a fixed, periodic payment of their benefits from a general pool, according to a formula set out in the plan document. A defined benefit plan participant has rights only to the value of the benefit they have accrued, and the plan sponsor bears all the investment risk and must cover any shortfall that might develop between the plan’s investments and the benefits owed under its formula.

In “pension risk transfer” transactions, a plan sponsor makes the non-fiduciary decision to purchase an annuity contract from an insurer to manage liability and investment risk. In turn, the insurer becomes obligated to pay participants the same benefits they had accrued under the pension plan and on the same schedule as they would be owed under the pension plan. Those annuity purchases result in the transfer of assets, participants, and payment obligations from the plan to the insurers.

A slew of recent class action lawsuits challenging pension risk transfers threatens to yet again subject plan sponsors to intense scrutiny for decisions that have been traditionally viewed as matters solely of plan sponsor discretion.  Each lawsuit alleges that selecting the annuity provider in a pension risk transfer is a fiduciary act and that the plan sponsor and plan fiduciaries breached fiduciary duties to plan participants by electing to transfer pension liabilities to an annuity provider that plaintiffs allege was not the “safest” one available.  The plaintiffs in these cases allege that by removing their benefits from an ERISA plan, the sponsor and fiduciaries have caused them various harms, including (1) that the value of their benefits has been “degraded” as a result of the transfer, (2) that the defendants failed to act in the exclusive interest of participants when selecting the annuity provider, and (3) the transfer caused them to lose the protection of PBGC pension guarantees (replaced by allegedly inferior protection afforded by state guarantee funds that protect insurance company annuitants).  In each case, the defendants moved to dismiss the complaint, hitting hardest at whether the plaintiffs had standing to bring their claims, having shown no actual harm resulting from the transfer.  

The key question in these pension risk transfer cases is how the injury alleged by the plaintiffs stacks up against the standard set out in the Supreme Court’s opinion in Thole v. U.S. Bank N.A., 590 U.S. 538 (2020).  In Thole, which concerned an allegedly imprudent defined benefit plan investment, the Supreme Court concluded that the plaintiffs lacked Article III standing to sue in part because whether the plaintiffs won or lost the case, “they would still receive the exact same monthly benefits that they [were] already slated to receive.”  That was true, the Court said, because the employer was ultimately on the hook for the benefits and the plaintiffs had not plausibly shown their pensions were at risk.

The Supreme Court however seemed to suggest that there remained one path to Article III standing (that the Thole plaintiffs had failed to assert): “if the mismanagement of the plan was so egregious that it substantially increased the risk that the plan and the employer would fail and be unable to pay the participants’ future pension benefits.”  In a footnote, however, the Court asserted that even if there was a risk that the plan and employer would fail, it was possible the full backing of the Pension Benefit Guaranty Corporation would defeat any standing argument. 

These pension risk transfer complaints highlight that in such a transaction, there is no longer any PBGC backing of the benefits. Unlike in Thole, the new plaintiffs allege, with a pension risk transfer, the participants “lose their protections under ERISA,” including the backing of the PBGC. 

Two district courts have now reached diametrically opposite conclusions on the standing question.

In Camire v. Alcoa USA Corp., No. 24-1062 (D.D.C. March 28, 2025), the Washington D.C. District court accepted the plaintiffs’ assertion that the backing of a state guaranty association was not as robust as that provided by the PBGC, yet still found that the risk of harm alleged by the plaintiffs was neither sufficiently “imminent” nor “certainly impending.”  Interestingly, because the defendants had moved under both Fed. R. Civ. P. 12(b)(1) (arguing that plaintiffs lacked Article III standing and thus the court lacked federal subject matter jurisdiction), and 12(b)(6), the Alcoa court began with the 12(b)(1) motion, and determined that because there was no subject matter jurisdiction, it could not address the defendants’ Rule 12(b)(6) arguments that the plaintiffs also failed to state a claim upon which relief may be granted.

In contrast, relying upon the same Thole reasoning and footnote, and conceding it was a “close call,” the District Court of Maryland concluded the plaintiffs in the case before it had pleaded enough to show Article III standing.  The Maryland court concluded: “In other words, Plaintiffs generally raise a type of allegation that the Thole plaintiffs did not: whether ‘mismanagement of the plan was so egregious that it substantially increased the risk that the plan and the employer would fail and be unable to pay the participants' future pension benefits.’”  The court also pointed to the plaintiffs’ assertion that they had been deprived of the PBGC backing that Thole had suggested could nullify the alleged harm.  The opinion also held that the plaintiffs had alleged sufficient injury to maintain claims for equitable relief, including surcharge, disgorgement and declaratory and injunctive relief.  The opinion spends a significant amount of time defending its standing holding – with extensive analysis of Thole and subsequent cases, and concludes that the factual questions underlying standing are intertwined with the underlying merits issues and cannot be resolved at this early stage of the case.  The court also rejected the defendants’ arguments that the dispute was not “ripe” under Article III and determined the participants did not lose “statutory standing” (the ability to sue under ERISA) when they left the plan.  Accordingly, the court determined that the plaintiffs had standing to proceed with their suit. 

Notably, the Maryland District court also took pains to state that “subject matter jurisdiction may be challenged ‘at any time,’” leaving open the possibility that if discovery showed there was not a “risk-of-collapse scenario,” that the defendants could challenge subject matter jurisdiction again.  The court went on to reach the defendants’ Rule 12(b)(6) dismissal arguments, and concluded the plaintiffs had plausibly alleged the plan sponsor acted as a plan fiduciary with respect to the pension risk transfer and that they had alleged sufficient facts to establish a potential prohibited transaction by alleging that the plan fiduciaries had acted in their own self-interest in selecting the annuity provider.  

Key Takeaways

Based on these two opposite initial rulings, it is reasonable to expect a similar split across the rest of the pension risk transfer cases. Much will depend on how each court views its duty to accept, at an early stage, the truth of the plaintiffs’ allegations in support of standing.  The more the defendants are able to debunk the plaintiffs’ assertions that the annuity provider was an “unsafe” selection and the plaintiffs face imminent harm, the more likely the court will be to accept standing challenges.  This counsels for joining standing attacks with arguments for dismissal pursuant to Rule 12(b)(6) or even for making “factual” challenges to subject matter jurisdiction under Rule 12(b)(1) so as not to be limited to what plaintiffs allege.