Supreme Court agrees to hear ERISA case against Northwestern University

The U.S. Supreme Court announced Friday it would hear oral arguments in an ERISA case, Hughes et al. vs. Northwestern University et al, in which participants in two 403(b) plans allege being charged excessive record-keeping fees and high investment option fees.

The court provided no comment other than to say Justice Amy Coney Barrett took no part in the deliberation. The case will be argued when the court resumes work in October, although no date has been set.

The plaintiffs submitted their request for court review in June 2020 after having suffered defeats at the District Court and appeals court levels. They asked the Supreme Court to hear their appeal, arguing that the ruling by the 7th U.S. Circuit Court of Appeals, Chicago, conflicted with ERISA opinions by other federal appeals courts, thus creating a so-called circuit split.

The plaintiffs filed their initial complaint in August 2016 and an amended complaint in December 2016. They accused the fiduciaries of ERISA violations relating to, among other things, having too many record keepers and too many investment options as well as charging excessively high fees.

The Chicago appeals court ruled in March 2020 that a Chicago federal judge's dismissal of the participants' claims in May 2018 was correct.

"We find no error" in the District Court judge's decision, the appeals court judges wrote.

"Any plan participant could avoid what plaintiffs consider to be the problems with those products ... simply by choosing other options," U.S. District Court Judge Jorge L. Alonso wrote in dismissing the case.

The Supreme Court's decision to review the case was delayed because the justices had asked the Solicitor General's Office for comments — a common practice. The request came in October 2020 during the waning weeks of the Trump administration. On May 25, the acting solicitor general, Elizabeth B. Prelogar, in the Biden administration, filed a brief supporting the plaintiffs.

The Northwestern fiduciaries "offer no sound basis for denying review of the important and recurring questions raised by the petition for a writ of certiorari," Ms. Prelogar wrote, referring to the plaintiffs' request.

She agreed with two of the complaints made by the participants, who asserted that fiduciaries "caused the plans' participants to pay excess investment-management and administrative fees when (fiduciaries) could have obtained the same investment opportunities or services at a lower cost," she wrote.

Ms. Prelogar pointed out that participants claimed plan fiduciaries "selected retail-class investment funds for inclusion in the plans even though identical institutional-class investment funds with lower management fees were available to the plans based on their size."

She also noted the plaintiffs' argument that the fiduciaries "failed to use any of several available methods to monitor and reduce the plans' cost of record-keeping services."

After examining the case history, Ms. Prelogar concluded that the Chicago appeals court's decision "conflicts with decisions of the Third and Eighth Circuits, both of which have held that essentially the same factual allegations and legal claims at issue here stated plausible claims for breach of ERISA's duty of prudence."

Ms. Prelogar's comments also suggested that the Supreme Court should use this case to offer more clarity on how courts should interpret ERISA.

"The question of what ERISA requires of plan fiduciaries to control expenses is important to millions of employees throughout the nation whose retirement assets are invested in ERISA-governed plans," she wrote. "And that question frequently recurs."