Background
On December 27, 2020, five representative plaintiffs filed a class-action certification request in the Tel Aviv-Jaffa District Court against four major “old” (vatikim) pension funds: Mivtachim, Makefet, the Central Pension Fund of Histadrut Workers, and Nativ. The claim, brought under Item 2 of the Second Schedule to the Class Actions Law, 2006 — which governs claims against insurers and fund managers in connection with matters concerning their clients — alleged that the funds acted negligently and breached their fiduciary and duty-of-care obligations to members. Specifically, the plaintiffs contended that the funds failed to implement Amendment 190 to the Income Tax Ordinance (Income Tax Amendment Law No. 190, 2012), which expanded tax exemptions for pension recipients, and neither proactively applied the “additional exemption” on members’ behalf nor adequately informed members of their entitlement to it. The plaintiffs sought compensation equal to the excess tax wrongly withheld from members.
In January 2023, the pension funds filed a third-party notice against the Israel Tax Authority, arguing that they had acted in accordance with the Tax Authority’s own guidelines and that the excess taxes collected had long since been remitted to the state rather than retained by the funds. On November 5, 2024, District Court Judge Limor Bibi certified the class action and permitted the third-party notice against the Tax Authority to proceed. Both the pension funds (רע”א 51396-01-25) and the Tax Authority (רע”א 51418-01-25) sought leave to appeal that certification decision to the Supreme Court.
On July 24, 2025, Justice Grosskopf held a hearing on the leave-to-appeal applications and recommended that all parties pursue a negotiated settlement. He proposed a framework under which fund members would be given the opportunity to submit tax-refund applications for 2014 onwards, with an agreed streamlined procedure — given that most of the information needed for such applications is already held by either the Tax Authority or the pension funds. Following negotiations, the parties jointly submitted a settlement agreement for court approval on May 6, 2026.
The Court’s Holding
Justice Grosskopf declined to approve the settlement agreement himself and instead transferred the approval request to the District Court panel (Judge Limor Bibi) that had handled the original certification proceedings. He directed the parties to file an appropriate notice with the District Court by June 14, 2026. With this referral, the Supreme Court’s involvement in the leave-to-appeal proceedings was concluded.
The Justice’s stated rationale was twofold: first, the proper and well-trodden path for scrutinising class-action settlements is the trial court, which is the forum prescribed by the Class Actions Law for this function; second, the Supreme Court’s current caseload — particularly pressing at the present time — counselled in favour of returning the matter to the court of first instance. The decision expressly preserves all parties’ rights in the event the District Court ultimately rejects the proposed settlement.
Key Takeaways
- The Supreme Court confirmed that approval of class-action settlements belongs, as a default rule, to the trial court (the district court), even where the settlement emerged from Supreme Court-level proceedings and was shaped by the Supreme Court’s own recommendations.
- The underlying dispute concerns whether four major “old” pension funds breached fiduciary duties by failing to apply or communicate Amendment 190 tax exemptions, potentially resulting in excess tax deductions from pension payments going back to at least 2014.
- The proposed settlement framework — streamlined tax-refund applications for affected members, with cooperation from both the funds and the Tax Authority — now proceeds for scrutiny before District Court Judge Limor Bibi.
- The Tax Authority’s involvement as a third-party respondent remains live: the funds’ defence that excess taxes were remitted to the state continues as a factual and legal issue within the proceeding.
Why It Matters
This decision reaffirms the institutional allocation of class-action oversight in Israel: even where a settlement is brokered at the Supreme Court’s initiative and with its active involvement, formal approval authority rests with the originating trial court under the Class Actions Law. Practitioners and litigants should not assume that a Supreme Court-recommended settlement framework bypasses the mandatory district-court approval process, with its requirements of notice to class members, a fairness hearing, and judicial scrutiny of adequacy.
On the merits, the case is a significant test of the duty-of-care obligations that pension-fund managers owe members with respect to tax optimisation — specifically whether funds that passively withheld a statutory tax benefit, rather than actively misappropriating funds, can be held liable in damages equal to the foregone benefit. The outcome of the settlement review, and any subsequent proceedings if settlement fails, will have broad implications for Israel’s large “old pension fund” sector and its millions of beneficiaries.