Supreme Court Will Hear Case Challenging Retirement Plan Investment And Recordkeeper Fees

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The Supreme Court recently granted the writ of certiorari requested by Northwestern University retirement plan participants, following the Solicitor General’s plea for the Court to hear the case.  Hughes v. Northwestern Univ., No. 19-1401, 2021 U.S. LEXIS 3583 (July 2, 2021). The certiorari petition phrased the question presented as: “[w]hether allegations that a defined-contribution retirement plan paid or charged its participants fees that substantially exceeded fees for alternative available investment products or services are sufficient to state a claim against plan fiduciaries for breach of the duty of prudence under ERISA.”

In Hughes, the plan participant-plaintiffs alleged that Northwestern breached the duty of prudence by (1) paying excessive recordkeeping fees (by using multiple recordkeepers and allowing recordkeeping fees to be paid through revenue sharing) and (2) offering mutual funds with excessive investment management fees.

The district court granted defendants’ motion to dismiss, and the Seventh Circuit affirmed. Finding no ERISA violation with respect to Northwestern’s recordkeeping arrangement, the Seventh Circuit noted that ERISA does not require a sole recordkeeper, and there is “nothing wrong – for ERISA purposes – with plan participants paying recordkeeper costs through expense ratios” under a revenue sharing agreement.

As for the excessive investment management fee claim, the Seventh Circuit concluded that the types of funds plaintiffs wanted (low-cost index funds) were and are available to them, thus “eliminating any claim that plan participants were forced to stomach an unappetizing menu.” The Seventh Circuit emphasized that Northwestern had provided the plans “with a wide range of investment options” and offered “prudent explanations for the challenged fiduciary decisions.”

The Solicitor General argued that the Seventh Circuit’s decision is incorrect and that its decision conflicts with decisions in the Third and Eighth Circuits. Northwestern argued no circuit conflict exists; instead the circuits “simply reached different results on different complaints.”

The Supreme Court’s order granting the writ of certiorari noted that Justice Barrett took no part in the consideration of this petition. Justice Barrett did not participate because she was a judge on the Seventh Circuit at the time the Seventh Circuit issued its decision. Regardless how the Supreme Court ultimately rules in this case, it is certain to have a significant impact on the more than 127 retirement plan fee class actions that have been filed since January 2020.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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