SCOTUS says retirement plans' options don't doom excessive-fee claims

(Reuters) - The U.S. Supreme Court on Monday ruled that offering workers a broad range of choices for their retirement investments does not shield employers from claims that specific options are imprudent because they come with high fees.

The unanimous court said the 7th U.S. Circuit Court of Appeals was wrong to conclude that because Northwestern University's employee retirement plan included a diverse menu of investments, a group of workers could not sue over alleged excessive fees tied to some of them.

Justice Sonia Sotomayor wrote for the court that even when retirement plan participants can choose their own investments, the federal Employee Retirement Income Security Act of 1974 requires employers to routinely evaluate the options they offer and determine whether any are imprudent.

The fact that plans offer options that come with lower fees does not mean the inclusion of high-fee investments is permissible under ERISA, Sotomayor said.

The number of lawsuits targeting high-fee investments offered by retirement plans has skyrocketed recently, with a fivefold increase between 2019 and 2020 alone, according to insurance firm Beecher Carlson. Monday's ruling is a boon for plaintiffs, as many employers have pointed to the fact that their plans offer lower-fee options in defending against such claims.

Northwestern has maintained that the higher-fee investments included in its plan enabled the school to offer more favorable terms on other popular products, and that eliminating them would have subjected participants to withdrawal penalties.

The school in a statement provided by a spokesman said the Supreme Court ruling was disappointing, but does not prevent the 7th Circuit from dismissing the lawsuit for other reasons. The Supreme Court sent the case back to the Chicago-based appeals court to reconsider its dismissal of the case in light of Monday's opinion.

David Frederick of Kellogg Hansen Todd Figel & Frederick, who represents the plaintiffs, said the decision sends a strong message that courts must look closely at whether individual decisions made by retirement plans were prudent.

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

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 the Department of Justice: Solicitor General Elizabeth Prelogar

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