Fed workers can't sue govt over late plan payments due to shutdown

(Reuters) - Federal employees cannot sue the USA for the profits they allegedly lost when a 34-day government shutdown forced agencies to temporarily suspend employer contributions to their retirement savings accounts, an appellate court held Monday.

The 3rd U.S. Circuit Court of Appeals reversed last year’s ruling by a lower-court judge in Philadelphia, who allowed four “John and Jane Doe” FBI investigators to proceed with a potential class action on behalf of all executive-branch employees who participated in the government’s $500 billion Thrift Savings Plan (TSP) at the time of the December 2018 shutdown.

The FBI caught up on its contributions to the plaintiffs’ TSP accounts when the shutdown ended. However, the plaintiffs say they lost the chance to share in extraordinary market gains that month, including a 10% gain in the TSP’s most popular investment options.

“The government’s late retirement payments meant that its employees missed out when the markets rose,” Circuit Judge Stephanos Bibas wrote, joined by Circuit Judges Paul Matey and Peter Phipps. “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.”

The employees’ appellate attorneys at Fegan Scott did not immediately respond to requests for comment. The U.S. Justice Department, which represented the government, declined to comment.

According to the 3rd Circuit, the plaintiffs relied on different sections of the Federal Employees’ Retirement System Act of 1986 (FERSA), which created the TSP to offer federal workers a defined-contribution plan similar to 401(k) plans offered by private employers.

The law requires federal agencies to contribute the employer's share to the plans within 12 days of each pay period. Another section allows participants to sue “to recover benefits.”

The plaintiffs argued that those sections, combined, gave them the right to sue for lost profits if the employer’s contribution is late.

The government argued that it had waived sovereign immunity from suit only for “benefits” — the employer’s contribution — not consequential damages like lost profits.

Senior U.S. District Judge Jan DuBois denied the government’s motion to dismiss but certified his ruling for an immediate appeal.

The 3rd Circuit said the most natural reading of “benefits” includes only the government’s contributions, not lost earnings on delayed contributions. Even if the text were ambiguous, the court said, waivers of sovereign immunity must be strictly construed in the government’s favor.

The case is John Doe et al. v. United States of America, 3rd U.S. Circuit Court of Appeals, No. 21-2140.

For John Doe 1-3 and Jane Doe: Jonathan Lindenfeld and Elizabeth Fegan of Fegan Scott

For USA: Bradley Hinshelwood of the U.S. Justice Department

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