January 24, 2022
Decided January 24, 2022
April Hughes, et al. v. Northwestern University, et al., No. 19-1401
On Monday, January 24, 2022, the Supreme Court held 8-0 that offering inexpensive investment options, together with other allegedly high-cost options, in a defined-contribution retirement plan does not itself categorically foreclose a claim for breach of ERISA’s duty of prudence.
The Employee Retirement Income Security Act (“ERISA”) imposes a duty of prudence on fiduciaries’ management of employees’ retirement plans. See 29 U.S.C. § 1104(a)(1)(B). Administrators of defined-contribution plans, which feature a “menu” of investment options into which employees may direct their contributions, are subject to the fiduciary duties set forth in ERISA. Petitioners, who are former and current employees of respondent Northwestern University, alleged that Northwestern violated its duty of prudence by providing employees with a menu of investment options that caused employees to incur excessive fees, both because too many options were offered and because of the high fees associated with a number of the available options. The Seventh Circuit affirmed the dismissal of petitioners’ claims for failure to plausibly allege a breach of fiduciary duty. It held in relevant part that Northwestern had complied with its duty of prudence by offering a menu of investment options that included petitioners’ preferred type of low-cost investments, along with other higher-cost options.
Whether participants in a defined-contribution retirement plan may state a claim for breach of ERISA’s fiduciary duty of prudence on the theory that investment options offered in the plan were too numerous and that many of the options were too costly, notwithstanding that the plan’s fiduciaries offered low-cost investment options in the plan as well.
Relying on Tibble v. Edison Int’l, 575 U.S. 523 (2015), the Supreme Court held that the Seventh Circuit erred in dismissing the plaintiffs’ claims without making a “context-specific inquiry” that “take[s] into account [a fiduciary’s] duty to monitor all plan investments and remove any imprudent ones.”
“[E]ven in a defined-contribution plan where participants choose their investments, plan fiduciaries are required to conduct their own independent evaluation to determine which investments may be prudently included in the plan’s menu of options.”
Justice Sotomayor, writing for the Court
What It Means:
The Court’s opinion is available here.
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