A New York Appellate court affirmed a dismissal of a fiduciary breach claim against the New York City Employees’ Retirement System, Teachers’ Retirement System of the City of New York, and Board of Education Retirement System of the City of New York (Wayne Wong et al. v. New York City Employees’ Retirement System et al.) related to decisions by fiduciaries that divested fossil-fuel based investments. The dismissal affirmed that the plaintiffs had no standing because they had not suffered any injury because their right under a defined benefit plan is to a fixed benefit payment, and that payment would likely be made regardless of the investment decision. The court’s rationale was like the US Supreme Court’s decision in US Bank v. Thole (2020) addressing another fiduciary breach claim on investments in a defined benefit plan. The New York Appellate court also noted there is “little to be gained from an abstract challenge to alleged fiduciary misconduct at the cost of the plan and those participants who did not bring (and may not approve of) the suit.”
While this decision was favorable for the fiduciaries, other retirement plan fiduciaries, including those for defined benefit and defined contribution plans, should pay attention:
- Note 1 - A favorable decision is good, but avoiding litigation is better. Investment fiduciaries should focus their investment analysis and decisions, and documentation of those decisions, in the context of “pecuniary factors” to minimize the risk of litigation.
- Note 2 - Certain states have adopted laws prohibiting or limiting a fiduciary’s ability to promote nonpecuniary interests when making investment decisions. Governmental plan fiduciaries should be aware of and ensure compliance with state laws that impact plan investments.
- Note 3 - Plans that are not governmental plans still have the ERISA requirements on plan investment selections to consider. The potential risk of litigation over ESG investments for retirement plans is not going away anytime soon. What should fiduciaries do - see Note 1.
