To the disappointment of many in the ERISA community, the Supreme Court issued a six-page opinion on January 24 that declined to rule on most of the issues before the Court in Hughes v. Northwestern University, No. 19-1401 (US 24 January 2022). In a unanimous opinion written by Judge Sotomayor, in which Judge Barrett did not participate, the Court reversed and remanded the Seventh Circuit’s decision affirming the dismissal of plaintiffs’ claims for excessive record-keeping and managing investments in Northwestern University’s 403(b) plans. The Court said the Seventh Circuit erred in that the dismissal was based in part on the assertion that offering expensive options was not unwise because plaintiffs had the opportunity to invest in less expensive alternatives. expensive. The Court found this reasoning incompatible with Tibble against Edison Int’l, 575 US 523 (2015), which requires trustees to continuously monitor each investment option in a plan to ensure that it is prudent and to withdraw imprudent funds within a reasonable time. The Court remanded the case with instructions to follow the requirements of Tibble and apply the Advocacy Standards of Bell Atlantic v. Twombly550 US 554 (2007) and Ashcroft vs. Iqbal566 US 662 (2009).
By focusing on and rejecting the Seventh Circuit’s “investor’s choice” rationale, the Supreme Court avoided the need to address the various other issues that have divided lower courts grappling with the massive wave of litigation over excessive fees and investment prudence brought against trustees of 401(k) and 403(b) plans since 2015. As an example, the Court did not consider whether it was sufficient at the stage of the argument that a plaintiff merely alleges that a plan offered retail equity class mutual funds instead of a lower cost. institutional share class funds, where the retail share class can generate revenue sharing credits that have paid record keeping fees; or that the plans paid record-keeping fees through an asset-based arrangement that resulted in higher per-member fees than other purportedly comparable plans, when the higher costs could have paid for services not provided to other plans.
Although the Court did not address these issues specifically, it provided general guidance that may prove instructive in future cases. First, as noted, the Court ordered the Seventh Circuit to apply the standard of pleading set forth in Secondly, which made it possible to take into consideration the obvious and lawful explanations of the alleged fault. Second, the Court ordered the lower courts to review its earlier decision in Fifth Third Bancorp vs. Dudenhoeffer, 573 US 409 (2014), an ERISA breach of fiduciary duty case, which stated that at the pleading stage, courts must conduct a “context-specific” investigation to determine whether the plaintiff had alleged plausibly a breach of the duty of care. Finally, the Court concluded its decision by stating that “due consideration must be given” to the “reasonable judgments that a fiduciary may make based on her experience and expertise”.
To take with
It would be an understatement to say that the decision fell short of the expectations of the ERISA Bar when certiorari was granted. But the limited guidance offered at the end of the court’s opinion may provide additional ammunition at the district court level, as the defense bar continues its battle to slow the current tidal wave of litigation over costs and investments.