PHILADELPHIA – The U.S. Court of Appeals for the Third Circuit has ruled that the United States government is immune from claims brought by a quartet of federal employees against it, for investment gains they said they would have received if the government made its retirement plan contributions on time during a 2018 shutdown.
Third Circuit judges Stephanos Bibas, Paul B. Matey and Peter J. Phipps found in favor of the U.S. government in a June 13 ruling, in the case against it brought by four employees from the Federal Bureau of Investigation.
Bibas authored the Court’s opinion in this case.
“When Congress does not pass a budget in time, the federal government shuts down. Smithsonian museums close, trash cans in national parks overflow, and lots of federal workers do not get their paychecks. All those things happened at the end of 2018, when the longest shutdown in history began. For more than a month, FBI employees, like other federal workers, were not paid. Nor did they get payments into their Thrift Savings Plan retirement accounts,” Bibas said.
“Once the government reopened, the employees had a right to back pay. Sure enough, the FBI sent them their missed paychecks and contributed to their Thrift accounts. But the contributions did not make the employees whole. While the government was shut down, the market had risen; ‘the most popular [Thrift] funds increased over 10 percent.’ If the government had made its Thrift contributions on time, that money would have bought more shares than the late payments did.”
As a result, the four John and Jane Doe employees filed a class action suit under the Federal Employees’ Retirement System Act of 1986 (FERSA), which created their Thrift retirement plans, seeking compensation for the investment gains that they would have gotten if the government had made its contributions on time.
FERSA requires a federal agency to contribute an amount equal to one percent of an employee’s salary to their retirement account – if the employee contributes more of their salary, the agency must match part of that contribution.
Notably, FERSA orders agencies to make their contributions “no later than 12 days after the end of the pay period”, but the FBI did not make those payments for nearly a month.
“Those provisions, the employees argue, give them an enforceable right to timely Thrift contribution. Plus, they say they can recover their losses by suing the government in federal court. In support, they point out that the Act lets ‘any participant or beneficiary’ of a Thrift plan sue in federal court ‘to recover benefits,” Bibas stated.
“The government agrees that Section 8477(e)(3)(C)(i) [of FERSA] waives sovereign immunity, but disagrees about the scope of that waiver. It moved to dismiss, arguing that this suit falls outside the waiver. It frames this case as an effort to recover consequential damages from the government’s late payment, arguing that such damages are not a ‘benefit’ within the waiver.”
The District Court agreed with the employees and refused to dismiss, but it certified this issue for interlocutory appeal.
Bibas stated that FERSA’s text and structure show that “lost earnings on late Thrift contributions are not benefits, and even if the waiver were ambiguous, [the Court] would read it narrowly, in favor of the government.”
“The employees ask us to include the value of timely contributions as well. But that reading does not square with the text. Both Section 8432(c)(1)(A) and (c)(2)(A) use the word ‘benefit’ to refer to the agency’s contribution, not its timeliness. The former paragraph phrases the timing requirement as a limit on the Executive Director’s power to set the payment time, not as a benefit. And the latter paragraph lists the contribution requirement in the first sentence and the 12-day timing requirement after it in a separate sentence,” Bibas said.
“In other words, the concrete benefit due is a percentage of salary, not the returns on that money. The verb phrase obligating the agency is ‘shall contribute’ or ‘shall…make.’ The direct object of that verb phrase, the thing to be contributed, is the ‘contribution,’ defined as a specified percentage of the employee’s salary. That is how much the agency must pay ‘for the benefit of the employee.’ The 12-day timing requirement is not the object of the verb phrase. Rather, it is a phrase or sentence that functions like an adverb, specifying not what the agency must contribute but when.”
The Third Circuit ruled that Congress chose not to authorize remedies for Thrift lost earnings due to the shutdown and that it “must respect that choice.”
Bibas and his colleagues ultimately decided in favor of the government’s position.
“The government’s late retirement payments meant that its employees missed out when the markets rose. But because Congress has not waived the government’s immunity from suit for these losses, the employees may not sue to recover their lost profits. So we will reverse and remand the District Court’s order,” Bibas said.
U.S. Court of Appeals for the Third Circuit case 21-2140
U.S. District Court for the Eastern District of Pennsylvania case 2:20-cv-01947
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com