On July 2, 2021, the U.S. Supreme Court granted certiorari in Hughes v. Northwestern University to address the split among several circuit courts on the pleading standard that applies to breach of fiduciary duty claims under ERISA.
The issue coming before the eight Supreme Court justices this fall (Justice Amy Coney Barrett recused herself from the case) is this:
Whether 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 the Employee Retirement Income Security Act of 1974.
The case comes on appeal from the Seventh Circuit, which dismissed plaintiffs’ claims in March 2020 by upholding a lower court’s dismissal of the suit. In its decision, the three-judge panel for the Seventh Circuit said, “It would be beyond the court’s role to seize ERISA for the purpose of guaranteeing individual litigants their own preferred investment options.”
The class action plaintiffs alleged that Northwestern had breached its fiduciary duty by offering them too many investment options, keeping two overpriced index funds that underperformed, and paying excessive plan fees. In dismissing all six claims, the Seventh Circuit noted that “Any participant could avoid what plaintiffs consider to be the problems with those products (excessive record-keeping fees and underperformance) simply by choosing from hundreds of other options within a multi-tiered offering system.”
The plaintiffs’ petition for certiorari underscored the current circuit court split, saying that “the Seventh Circuit dismissed petitioners’ ERISA claims for imprudent retirement plan management, even though the Third and Eighth Circuits have allowed lawsuits with virtually identical allegations to advance, and the Ninth Circuit has also upheld similar claims.”
Prior to making its decision on hearing the case, the Supreme Court asked the federal government to weigh in. The government responded in an amicus brief saying that the petition for a writ of certiorari should be granted, noting that the Seventh Circuit’s dismissal “reflects more than just a different outcome” than the Third and Eighth Circuit rulings, “it reflects a different (and incorrect) understanding of the substantive obligations that ERISA imposes on plan fiduciaries.”
In addition, the government’s amicus brief stated that, “resolving the question presented would establish general principles of application for ERISA’s duty of prudence that would have implications beyond this particular case. The case presents an opportunity for this Court to clarify that ERISA requires fiduciaries to work actively to limit a plan’s expenses and remove imprudent investments, and that fiduciaries will not be excused from those responsibilities on the ground that they selected some (or even many) other prudent investments for a plan.”
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