SCOTUS probes limits of excessive-fees claims over retirement plans

The U.S. Supreme Court, Roe vs. Wade
The sun sets at the U.S. Supreme Court building, November 29, 2021. REUTERS/Leah Millis
  • High court could put up hurdles to class actions over retirement plan fees
  • Case involving Northwestern University created circuit split
  • Conservative justices concerned about impact of plaintiff-friendly ruling

(Reuters) - Conservative justices on the U.S. Supreme Court voiced concerns on Monday that a low bar for suing over high fees in employee retirement plans could invite more class-action lawsuits second-guessing plan administrators' investment strategies.

The court heard oral arguments in a case against Northwestern University over whether a plan's inclusion of higher-fee investment options is by itself enough to support a claim that administrators breached their duty of prudence under federal employee benefit law.

A group of Northwestern employees and retirees, represented by David Frederick of Kellogg Hansen Todd Figel & Frederick, say their 2018 proposed class action should survive a motion to dismiss because they adequately alleged that the school failed to take steps to minimize the fees it paid to some funds.

Justices Brett Kavanaugh and Clarence Thomas on Monday said allowing more excessive-fee cases to proceed toward trial had real-world implications for plans, including a potential uptick in lawsuits attacking plans' investment decisions rather than the negligent conduct deemed imprudent under Employee Retirement Income Security Act of 1974 (ERISA), and added pressure on plan administrators to enter into multimillion-dollar settlements.

The case is one of roughly two dozen filed since 2016 accusing colleges and universities of violating ERISA by failing to monitor retirement plans, drop underperforming funds or limit fees, and the first to reach the Supreme Court.

The 7th U.S. Circuit Court of Appeals last year said that because Northwestern's retirement plan offered a range of investment options that included lower-fee funds, the plaintiffs could not state a claim under ERISA.

The court split with the 3rd and 8th Circuits, which have recently ruled that allowing high-fee investment options can negatively impact plans as a whole and therefore could be considered imprudent under ERISA.

The Supreme Court granted certiorari in the Northwestern case in July.

Gregory Garre of Latham & Watkins, who represents Northwestern, told the Supreme Court on Monday that endorsing a lower standard for excessive-fee claims would push more cases into the costly discovery process even when the underlying claims lack merit, and force courts to micromanage retirement plans.

Justice Sonia Sotomayor, echoing other liberal justices, told Garre that settlements in similar cases and changes universities have made in response to litigation have clearly benefited workers and retirees.

"We may not have a rule as wide as the petitioner wants, but there has to be a happier medium than what you're advocating and what the 7th Circuit has [ruled]," she said.

The case is Hughes v. Northwestern University, U.S. Supreme Court, No. 19-1401.

For the plaintiffs: David Frederick of Kellogg Hansen Todd Figel & Frederick

For Northwestern: Gregory Garre of Latham & Watkins

For DOJ: Solicitor General Elizabeth Prelogar

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Dan Wiessner (@danwiessner) reports on labor and employment and immigration law, including litigation and policy making. He can be reached at