To the disappointment of many in the ERISA community, the Supreme Court issued a six-page opinion on January 24th that declined to opine on most of the issues that were before the Court in Hughes v. Northwestern University, No. 19-1401 (U.S. Jan. 24, 2022). In a unanimous opinion authored by Justice Sotomayor, in which Justice Barrett took no part, the Court vacated and remanded the Seventh Circuit’s decision upholding the dismissal of plaintiffs’ claims of excessive recordkeeping and investment management fees in Northwestern University’s 403(b) plans. The Court stated that the Seventh Circuit erred insofar as the dismissal was based in part on the statement that offering expensive options was not imprudent because plaintiffs had the option of investing in less expensive alternatives. The Court found this reasoning to be inconsistent with Tibble v. Edison Int’l, 575 U.S. 523 (2015), which demands that fiduciaries continuously monitor each investment option in a plan to ensure that it is prudent and remove imprudent funds within a reasonable time. The Court remanded the case with instructions to follow the requirements of Tibble and apply the pleading standards of Bell Atlantic v. Twombly, 550 U.S. 554 (2007) and Ashcroft v. Iqbal, 566 U.S. 662 (2009).

By focusing on, and rejecting, the Seventh Circuit’s “investor choice” rationale, the Supreme Court avoided the need to address the various other issues that have divided lower courts wrestling with the massive surge of excessive fee and investment prudence litigation brought against the fiduciaries of 401(k) and 403(b) plans since 2015. By way of example, the Court did not address whether it is sufficient at the pleading stage for a plaintiff to merely allege that a plan offered retail share class mutual funds instead of lower cost institutional share class funds, when the retail share class might generate revenue sharing credits that paid for recordkeeping fees; or that the plans paid recordkeeping fees through an asset-based arrangement that resulted in a higher per participant fee than other allegedly comparable plans, when the higher costs might have paid for services not provided to other plans.

While the Court did not reach these issues specifically, it did provide some broad guidance that may turn out to be instructive in future cases.  First, as noted, the Court directed the Seventh Circuit to apply the pleading standard set forth in Twombly, which allowed for the consideration of obvious and lawful explanations for the alleged wrongdoing.  Second, the Court directed that the lower courts consider its previous decision in Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409 (2014), an ERISA breach of fiduciary duty stock drop case, which stated that at the pleading stage courts must conduct a “context specific” inquiry to determine if plaintiff has plausibly alleged a breach of the duty of prudence.  Lastly, the Court concluded its decision by stating that “due regard” must be given to the “reasonable judgments a fiduciary may make based on her experience and expertise.”

Takeaway

It would be an understatement to say that the decision did not live up to 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 some added ammunition at the district court level, as the defense bar continues its battle to slow down the current tidal wave of fee and investment litigation.

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Photo of Myron Rumeld Myron Rumeld

Myron D. Rumeld has over thirty-five years of experience handling all aspects of ERISA litigation at both the trial and appellate level. His broad experience includes numerous representations of 401(k) plan fiduciaries defending class action employer stock and excessive fee claims, and representations…

Myron D. Rumeld has over thirty-five years of experience handling all aspects of ERISA litigation at both the trial and appellate level. His broad experience includes numerous representations of 401(k) plan fiduciaries defending class action employer stock and excessive fee claims, and representations of large multiemployer pension and health fund trustees in the defense of a large assortment of fiduciary breach lawsuits. He has defended class action suits against Charles Schwab, Barnabas Health, Inc., Neuberger Berman, and the American Federation of Musicians Pension Fund, among many other clients; and he has tried cases for The Renco Group and Foot Locker, Inc., among others.

Chambers USA cites Myron as a “brilliant” and “sensational litigator,” who is “sharp, articulate, clever, and deeply committed to the work he does.” Similarly, The Legal 500 United States has called Myron an “outstanding ERISA lawyer.”

Myron is presently co-chair of Proskauer’s ERISA Litigation Group.  He previously served as co-chair of Proskauer’s nationally renowned Employee Benefits & Executive Compensation Group. He also served as the past co-chairman of the Board of Editors for the American Bar Association publication, Employee Benefits Law (BBNA).

Photo of Tulio Chirinos Tulio Chirinos

Tulio D. Chirinos is an associate in the Labor & Employment Law Department and a member of the Employee Benefits & Executive Compensation Group and the Workplace Investigations Practice Group.

Tulio works on a wide variety of ERISA and non-ERISA plan litigation matters…

Tulio D. Chirinos is an associate in the Labor & Employment Law Department and a member of the Employee Benefits & Executive Compensation Group and the Workplace Investigations Practice Group.

Tulio works on a wide variety of ERISA and non-ERISA plan litigation matters, including fee and investment litigation cases, breach of fiduciary duty claims and benefits claims. He also represents management in workplace investigations and litigation of employment-related matters, including claims of unlawful discrimination, harassment and retaliation. Tulio focuses his pro bono efforts on immigration matters where he has represented several juveniles from Central America in their asylum petitions and special immigrant juvenile status (SIJ) petitions.

Tulio is the author of several ERISA-related articles, including several focusing on ERISA fee and investment litigation that appeared in the Benefits Law Journal (2016-2023), Bloomberg BNA, and Law360. He is a contributing author to Chapter 10 (Fiduciary Responsibility) of BNA’s Employee Benefits Law treatise. He is also the co-editor and a frequent contributor to Proskauer’s Employee Benefits & Executive Compensation Blog.

Prior to joining Proskauer, Tulio clerked for the Federal Public Defender’s office for the Middle District of Florida. Tulio is a retired Lieutenant Colonel in the Army National Guard and served three tours of duty in Iraq, Kuwait, and Jordan.

Photo of Daniel Wesson Daniel Wesson

Daniel Wesson is an associate in the Labor Department and a member of the ERISA Litigation Group.