- The Supreme Court has granted a Writ of Certiorari and agreed to review the dismissal of the plaintiffs’ suit filed against Northwestern University. The decision will likely focus on the duty of fiduciaries to monitor plan investments on an ongoing basis.
- Since 2016, more than 20 lawsuits have been filed against fiduciaries of university retirement plans. The defendants are some of the largest and most prestigious schools in the country. These schools present tempting targets as their retirement plans hold significant assets. Many of these suits were filed by the law firm of Schlichter, Bogard & Denton. This is the St. Louis law firm that has initiated many of the class action lawsuits brought against plan fiduciaries in recent years.
- Plaintiffs have not fared all that well in these suits. Some schools have settled out of court, but the amount of these settlements has been small on a per participant basis. A number of schools have successfully made their case in court, including Northwestern.
- The allegations in these suits have been similar including a dizzying array of investment choices that is confusing to participants; using different record keepers for the same plan; failing to offer index funds; and paying excessive fees because the fiduciaries failed to leverage their plan’s large size in fee negotiations and in selecting less expensive share classes. While some of these practices are questionable, they are typical of how large university retirement plans are administered.
- The case against Northwestern never went to trial because the court granted Northwestern’s motion to dismiss. A motion to dismiss is granted only if the judge decides that regardless of what facts are proven at trial, the plaintiffs have failed to state a claim.
- This decision was affirmed by the Seventh Circuit of the US Court of Appeals. In a strong rebuke of the plaintiffs, the Court of Appeals stated they failed to allege any violations of ERISA, but rather merely stated opinions and preferences regarding how retirement plans should be administered.
- A Writ of Certiorari is a request that the Supreme Court review the decision of a lower court. That the Supreme Court granted the writ in the Northwestern case is in and of itself significant. The Court receives thousands of writs each year but, due to time constraints, only agrees to hear between 100 and 150 cases.
- The US Solicitor General argued that the Supreme Court should hear this case because the plaintiffs have alleged two plausible claims for breach of fiduciary duties under ERISA and more significantly, the Seventh Circuit’s decision is in conflict with decisions in the Third and Eight Circuits in similar cases. Conflicting decisions in the Courts of Appeals is the most common reason for the Supreme Court to grant a Writ of Certiorari.
- The government’s brief arguing for certiorari makes a number of points. Probably the most significant is that the fiduciaries failed to act prudently in using retail share classes rather than identical institutional classes with lower fees. These were available to the Northwestern because of the large size of its plans. The brief cites the Supreme Court’s decision in Tibble v. Edison International which holds that fiduciaries have an ongoing duty to monitor a plan’s investment options.
- The Court is in recess until the fall so this case will not be heard before October.
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This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation. [A proud member of RPAG]