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Justices look for happy medium in university retirement plan snarl

The high court heard what has become trending legislation over the last few years: a challenge to how universities manage their retirement plans.   

WASHINGTON (CN) — The Supreme Court devoted oral arguments Monday to the search for middle ground in a suit over excessive fees built in to university employees' retirement plans. 

“I don't know, counsel, that we can say a rule as broad as the Seventh Circuit has without harming the beneficiaries,” Justice Sonia Sotomayor said in an exchange with the attorney representing the Northwestern University. “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.” 

The justices seemed to acknowledge pieces of each side’s arguments without fully embracing one or the other. 

“You say there's no limit for them, but, you know, there's no stopping point for you either,” Justice Clarence Thomas said in an exchange with the lawyer for April Hughes and other university employees. 

Justice Stephen Breyer parsed the wording of the employees' petition and still came up empty. 

“If that were the situation, and you should read it like a real nitpicker, then I can find something lacking, and if I read it not like a nitpicker, it says what you said so I'm slightly stuck,” the Clinton appointee said. 

Justice Brett Kavanaugh expressed exasperation with how to deal with the large number of these cases that have come to the court in the pleading stage and then ultimately been settled later on. He said the invocation that this case is still in the pleading stage “forces us not to deal with the reality of what’s going on.” 

“I don't know how to deal with this is that these class action complaints are such that the game is to get past the pleading stage,” the Trump appointee said. “We've heard … the phrase pleading stage multiple times. This is just the pleading stage, don't worry about it, it can all be worked out trial. It doesn't happen in the real world.”  

Alleging that Northwestern's mismanagement of retirement plans led to the “erosion of their account balances through excessive fees," Hughes and other employees filed suit under the Employee Retirement Income Security Act of 1974 — a move by Congress to federalize the responsibility of fiduciaries in employee retirement plans. When the university moved to dismiss the employees’ suit, the District Court ruled in their favor, concluding that “it is not clear that the plan could have arranged for lower prices.” The Seventh Circuit affirmed the decision, bringing the case to the Supreme Court.  

Similar cases have grown in popularity in the last few years with more than 20 elite universities since 2016 being hit with class action lawsuits over management of retirement plans. The attorney for the university — Gregory Garre with Latham & Watkins — addressed the increase in these cases over the years. Garre said the employees’ complaint was “massive in size but short on specifics” because it was designed to go after 20 universities at once. 

“This case is one of a barrage of damages actions filed against leading universities across the country, in petitioner’s own words, to revolutionize fiduciary practices, not through prospective changes to ERISA or its regulations but through the blunt threat of damages actions for past conduct,” Garre said. 

Garre warned that employees would bear the brunt of these actions. 

“Ultimately, it's the employees and the retirees who would be the real losers, as plans shed options, scale back services, and perhaps even fold up all together in the wake of skyrocketing insurance premiums,” Garre said. 

Representing the employees, David Frederick of Kellogg Hansen argued that plan members were being overcharged for their investments and were entitled to lower fees. 

“The very same investment was being offered to participants at a much higher cost than they should have been able to get because they were entitled to get the institutional share class fees,” Frederick said.  

The Department of Justice also argued as amicus curiae for the university employees. 

“The allegations in this complaint — assuming them to be true at this stage — show that respondents here acted imprudently by wasting plan participants’ retirement savings,” said Michael Huston, assistant to the solicitor general.  

Attorneys for the university and its employees did not respond to requests for comments following oral arguments. 

Follow @KelseyReichmann
Categories / Appeals, Education, Employment, Financial

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