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Compliance October 6, 2020
Supreme Court Asked to Review Sufficiency of Excessive Fee Imprudence Claims
In a case against Northwestern University, the petitioners ask whether allegations that a plan paid or charged its participants fees that exceeded fees for alternative available investment products are sufficient to state a claim.
Reported by Rebecca Moore
Attorneys for the plaintiffs in a lawsuit alleging breaches of Employee Retirement Income Security Act (ERISA) fiduciary duties by fiduciaries of two Northwestern University retirement plans have filed a petition with the U.S. Supreme Court.
The petition says appellate courts in the 3rd and 8th U.S. Circuits have held that a plan participant can adequately plead a breach of fiduciary duty by claiming that the retirement plan charged excessive fees when lower-cost alternatives existed. It notes that the 7th U.S. Court of Appeals held in the Northwestern case that such pleadings “are insufficient to state a claim, because it is necessary to credit the defendant’s explanation for not offering lower cost options for the retirement plan before allowing a well-pleaded complaint to proceed.”
The question before the Supreme Court is: “Whether allegations that a defined contribution [DC] retirement plan paid or charged its participants 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.”
The petition claims that the 7th Circuit’s decision threatens to stop progress the plaintiffs’ attorneys say has happened because of excessive fee litigation against DC retirement plans. It cites a federal district court decision in a case against Johns Hopkins University in which the court said litigation “on behalf of participants in large 401(k) and 403(b) plans has significantly improved these plans, brought to light fiduciary misconduct that has detrimentally impacted the retirement savings of American workers and dramatically brought down fees in defined contribution plans.”
The petition says the case “presents an excellent vehicle to address a recurring issue of national importance.”
The Supreme Court has invited the acting solicitor general to file a brief in the case expressing the views of the United States.