Northwestern University Urges Supreme Court Not To Revive ERISA Lawsuit

In April Hughes et al. v. Northwestern University et al., the defendant, Northwestern University (“Northwestern”) urged the U.S. Supreme Court to uphold the Seventh Circuit’s ruling that ended the lawsuit claiming the school permitted its retirement plans to pay exorbitant fees. Northwestern claims that the Court would encourage “judicial micromanagement” of retirement plan fees and have a detrimental impact on such plans if it revives the case. Current and former employees proposed a class action suit alleging that the school failed to meet its duties and obligations under the Employee Retirement Income Security Act (ERISA).

In a brief filed by Northwestern, the school argued that any agreement with the plaintiffs’ position would expose those responsible for plan oversight to potential ERISA liability and demand the “judicial micromanagement” of plan fees.

“Such claims, and the resulting exposure to massive discovery costs and personal liability, will only discourage employers from offering participants the range of choices that ERISA encourages, if not discourage them from offering retirement plans altogether.” 

Northwestern further alleged that if similar suits are allowed to proceed, then the federal courts would be required to make financial decisions that are not within their expertise and, subsequently, deprive plan participants of the power to make crucial decisions that affect their retirement savings.

Northwestern’s brief also claimed that the lawsuit failed to follow the standard established by the Supreme Court’s 2014 ruling in Fifth Third Bancorp v. Dudenhoeffer. According to Northwestern’s brief, this particular decision established that plaintiffs must allege some other plausible solution that a decision-maker could have chosen to make a legitimate claim for a breach of fiduciary duty.

The plaintiffs urged the Supreme Court to reverse the Seventh Circuit’s decision to throw out their proposed class action, arguing that the court incorrectly concluded that providing a multitude of investment options meant the university and those overseeing the retirement plan were immune from liability.

The workers contended that the overabundance of options, including high-fee options, required workers to undertake a time-consuming, arduous search through numerous options to find good investments. The workers also argued that the Seventh Circuit had imposed an overly harsh pleading standard that contradicted the intent of Congress (through ERISA) to protect retirement plan beneficiaries.

Benefits attorneys have closely monitored the case based on the continued proliferation of ERISA litigation challenging the fees and investments of retirement plans. The case was filed in 2016 and thrown out of court by an Illinois federal judge in 2018. The Seventh Circuit upheld the dismissal in March 2020, agreeing with the lower court that Northwestern didn’t violate ERISA. The court found that because Northwestern offered other, better-performing funds to workers who were free to invest in them, it did not violate ERISA.

Jerome Schlichter, counsel for the workers and plan participants, released a statement in which he charged “Northwestern is trying to undo the Supreme Court’s unanimous landmark decision in Tibble v. Edison, in which it held that fiduciaries must act prudently in selecting and monitoring plan investments with a rule that they need only include some prudent options, even if others are imprudent. That would allow fiduciaries to include a Bernie Madoff fund in a plan no matter how tainted.”

“They also rehash the long rejected argument that allowing such lawsuits will be devastating to employers, but do not point to a single employer who has stopped offering a defined contribution plan. Instead, just the opposite has occurred, with more plans and more assets than ever before,” Schlichter’s statement continued.

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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