WASHINGTON (CN) — Northwestern University employees who lost their challenge against retirement plan fees persuaded the Supreme Court on Monday to grant them another round of litigation.
At just six pages in length, the decision is a short, finding that the Seventh Circuit put too high a value on the fact that retirement plan participants had choice over their investments.
"In Tibble, this court explained that, even in a defined-contribution plan where participants choose their investments, plan fiduciaries are required to conduct their own independent evaluation to determine which investments may be prudently included in the plan’s menu of options," Justice Sonia Sotomayor wrote for the court, referring to the 2015 case Tibble v. Edison International. "If the fiduciaries fail to remove an imprudent investment from the plan within a reasonable time, they breach their duty."
Following the court’s ruling, a lawyer for the plan members said they were pleased with the decision.
“We’re gratified the court unanimously ruled that retirement plan participants have viable claims against fiduciaries for failing to protect participants’ assets from depletion through excessive fees and expenses,” David Frederick, who is with the firm Kellogg Hansen, said in an email.
Every justice joined Monday's opinion except for Justice Amy Coney Barrett. The Trump appointee did not participate in December when the case went for oral arguments because of her short stint in 2020 as a colleague of Seventh Circuit judges who had ruled for Northwestern.
Led by April Hughes, the class action against Northwestern is one of more than 20 to be brought against universities since 2016 under the Employee Retirement Income Security Act of 1974. Congress created ERISA to federalize the responsibility of fiduciaries in employee retirement plans.
During oral arguments, the justices appeared to be looked for a happy medium in their ruling.
“I don't know, counsel, that we can say a rule as broad as the Seventh Circuit has without harming the beneficiaries,” Sotomayor had said in an exchange with the attorney representing the Northwestern. “You may not have a rule as wide as the petitioner wants but there has to be a happier medium than what you're advocating.”
Northwestern warned the justices that employees would be the real losers if plans got rid of options and scaled back their services to combat rising insurance premiums. Meanwhile the employees countered that they were entitled to lower fees.
The Department of Justice weighed in on the case as amicus curiae in support of the employees. They said, if the employee’s allegations were true, Northwestern was indeed wasting their employees’ retirement savings.
Sotomayor wrote Monday that, under Tibble, the employees are entitled to a merits determination of their claims regarding excessive record-keeping fees, confusing offering options, and the possibility of cheaper, similar investment options. The ruling chides the Seventh Circuit for focusing instead on the diversity of the university’s investment options.
“The Seventh Circuit erred in relying on the participants’ ultimate choice over their investments to excuse allegedly imprudent decisions by respondents,” Sotomayor wrote.
Taking issue with the Seventh Circuit’s “exclusive focus” on investor choice, Sotomayor said the appeals court rejected allegations from employees that offerings were too expensive or underperforming using the same grounds that employees failed to claim the university didn’t make preferred offerings available to them.
“In the court’s view, because petitioners’ preferred type of investments were available, they could not complain about the flaws in other options,” Sotomayor wrote. “The same was true for recordkeeping fees: The court noted that ‘plan participants had options to keep the expense ratios (and, therefore, recordkeeping expenses) low.’ Thus, ‘[t]he amount of fees paid were within the participants’ control.’”
Sotomayor said Tibble obligated Northwestern to conduct an independent evaluation of what plan options to include for its employees.
Vacating the Seventh Circuit’s judgment, the justices asked the appeals court to reconsider the employees’ allegations as a whole.
“At times, the circumstances facing an ERISA fiduciary will implicate difficult tradeoffs, and courts must give due regard to the range of reasonable judgments a fiduciary may make based on her experience and expertise,” Sotomayor wrote.
Attorneys for Northwestern at Latham & Watkins and Willkie Farr & Gallagher did not respond to a request for comment.
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