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Supreme Court Will Hear Case Challenging Retirement Plan Investment and Recordkeeper Fees

The Supreme Court recently granted the writ of certiorari requested by Northwestern University retirement plan participants, following the Solicitor General’s plea for the Court to hear the case.  Hughes v. Northwestern Univ., No. 19-1401, 2021 U.S. LEXIS 3583 (July 2, 2021). The certiorari petition phrased the question presented as: “[w]hether allegations that a defined-contribution retirement plan paid or charged its participant 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 ERISA.”

In Hughes, the plan participant-plaintiffs alleged that Northwestern breached the duty of prudence by (1) paying excessive recordkeeping fees (by using multiple recordkeepers and allowing recordkeeping fees to be paid through revenue sharing) and (2) offering mutual funds with excessive investment management fees.

The district court granted defendants’ motion to dismiss, and the Seventh Circuit affirmed. Finding no ERISA violation with respect to Northwestern’s recordkeeping arrangement, the Seventh Circuit noted that ERISA does not require a sole recordkeeper, and there is “nothing wrong – for ERISA purposes – with plan participants paying recordkeeper costs through expense ratios” under a revenue-sharing agreement.

As for the excessive investment management fee claim, the Seventh Circuit concluded that the types of funds plaintiffs wanted (low-cost index funds) were and are available to them, thus “eliminating any claim that plan participants were forced to stomach an unappetizing menu.” The Seventh Circuit emphasized that Northwestern had provided the plans “with a wide range of investment options” and offered “prudent explanations for the challenged fiduciary decisions.”

The Solicitor General argued that the Seventh Circuit’s decision is incorrect and that its decision conflicts with decisions in the Third and Eighth Circuits. Northwestern argued no circuit conflict exists; instead the circuits “simply reached different results on different complaints.”

The Supreme Court’s order granting the writ of certiorari noted that Justice Barrett took no part in the consideration of this petition. Justice Barrett did not participate because she was a judge on the Seventh Circuit at the time the Seventh Circuit issued its decision. Regardless how the Supreme Court ultimately rules in this case, it is certain to have a significant impact on the more than 127 retirement plan fee class actions that have been filed since January 2020.

Jackson Lewis P.C. © 2021National Law Review, Volume XI, Number 195
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About this Author

René E. Thorne, Jackson Lewis, Employment Litigation, ERISA Attorney"
Office Managing Principal and Office Litigation Manager

René E. Thorne is Office Managing Principal of the New Orleans, Louisiana, office of Jackson Lewis P.C. Her practice covers the full range of employee benefit litigation matters, including representation of employers, plans, plan fiduciaries, and trustees.

In that regard, she has handled numerous ERISA class actions for clients such as Nortel Networks, Target, Krispy Kreme Doughnuts, Owens Healthcare, United Airlines ESOP Committee, Dunbar Armored, United Companies, Benefits Administration Corporation, and Beverly Enterprises. Ms. Thorne also has handled...

504-208-1755
Lesley Pietras ERISA Knowledge Management Attorney Jackson Lewis New Orleans
Knowledge Management Attorney

Lesley Pietras is a knowledge management (KM) attorney for Jackson Lewis P.C.’s ERISA Complex Litigation group, and based in the New Orleans, Louisiana, office of Jackson Lewis P.C.

Prior to joining Jackson Lewis, Lesley practiced environmental law at firms in New Orleans and Washington, D.C. She also spent four years serving as a staff attorney with the legal division at the U.S. Court of Appeals for the D.C. Circuit.

504-208-1755
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