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.

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