Mark Bieter Discusses Ramifications of Supreme Court Decision in ERISA Excessive Fee Case

Attorney Mark Bieter contributed an article to Bloomberg Law’s Retirement Benefits, Professional Perspectives titled “Scotus Opens ERISA Litigation Floodgates,” published January 25, 2022. (Subscription required.) The article discusses a recent unanimous Supreme Court decision in a case in which the plaintiff had alleged that Northwestern university and its retirement plan fiduciaries violated ERISA because two plans sponsored by the university included investment options and services that are more expensive than others available in the market.

The case, Hughes v. Northwestern, No. 19-1401 (U.S. Jun 23, 2020), was on appeal from the Seventh Circuit, which had affirmed the district court’s granting of defendants’ motion to dismiss – holding that the plaintiffs failed to state a claim for breach of fiduciary duty and because participants in the plans had lower-cost investment options available to them.

The Supreme Court vacated the judgment, with Justice Sonia Sotomayor writing on behalf of the unanimous Court that the Seventh Circuit had “erred in relying on the participants’ ultimate choice over their investments to excuse allegedly imprudent decisions” by the Northwestern University plan fiduciaries and that “[i]f the fiduciaries fail to remove an imprudent investment from the plan within a reasonable time, they breach their duty.”

According to Bieter, some key takeaways from the outcome of the case are:

• The decision is likely to make it even more difficult for ERISA excessive fee cases to be dismissed during the early stages of litigation.
• Fiduciaries will need to balance historical reliance by the lower courts on ERISA’s duty to diversify investment options against the potential call for restraint in diversification in the Northwestern decision.
• The onus for investment menus will be on plan fiduciaries.

Bieter concludes: “Despite being only six pages, the Supreme Court’s Northwestern decision will probably be evaluated and cited for years, only propelling a line of litigation that has been active for more than a decade.”