Trial News

In a unanimous decision, the U.S. Supreme Court has ruled in favor of Northwestern University’s defined-contribution retirement plan participants who alleged that plan administrators breached their fiduciary duty by offering imprudent investment options. Reversing a Seventh Circuit decision, the Court found that the administrators had not satisfied their duties under the Employee Retirement Income Security Act of 1974 (ERISA) simply by making other, better investment options available. (Hughes v. Nw. U., 2022 WL 199351 (U.S. Jan. 24, 2022).)

Specifically, the plan participants alleged the administrators violated their duty of prudence under ERISA by offering “retail” share classes with higher fees than those of otherwise identical share classes, failing to control recordkeeping fees, and offering investment options that were likely to cause confusion. The Court disagreed with the Seventh Circuit’s holding that because the plan participants ultimately retained some choice over their investments and other, better options were offered, this excused the administrators’ actions. Even if more prudent investments are offered, plan administrators must independently evaluate investments included on a plan’s menu of options and remove imprudent options, the Court said, relying on its previous decision in Tibble v. Edison International (575 U. S. 523 (2015).) It vacated and remanded for a reevaluation of whether the plan participants alleged a violation of the Tibble duty of prudence under the applicable Iqbal and Twombly pleading standards.

AAJ filed an amicus brief in support of the plan participants, arguing that Congress’s intent in enacting ERISA was “to protect workers whose retirement savings had been vulnerable to loss due to misconduct and mismanagement by those entrusted with such funds.” AAJ also urged the Court to reject the heightened pleading standard advanced by the U.S. Chamber of Commerce—that standard would have required plaintiffs to plead facts supporting an inference that a defendant is liable and also show that the inference is “more likely” than any alternate explanation for the defendant’s actions.