Northwestern Dings ‘Paternalistic’ Take on ERISA in SCOTUS Brief

Northwestern University defended its retirement plans from a closely watched challenge in the U.S. Supreme Court, telling the justices it gave university employees an array of sound investment options and allowed them to make choices according to their own preferences.

The lawsuit rests on a “paternalistic conception” of the Employee Retirement Income Security Act that assumes plan participants “lack the capacity to make ‘intelligent’ investment choices from among a wide array of options,” Northwestern said in a brief filed Thursday. This is inconsistent with ERISA’s emphasis on participant choice, and it invites widespread litigation and “judicial micromanagement” of retirement plan fees, the school said.

“In rare cases, a single investment option may be so rotten that it would call into question the prudence of the fiduciary as a general matter,” Northwestern said. “But here, the investments at issue are widely held and generally sound; the only complaint is that they could have possibly been slightly less expensive.”

Northwestern also leaned on the Supreme Court’s 2014 ruling in Fifth Third Bancorp v. Dudenhoeffer, which set the pleading standard for ERISA lawsuits challenging 401(k) losses tied to drops in employer stock price. Northwestern argued the Dudenhoeffer standard—which looks at alternative actions a prudent fiduciary could have taken, and whether those actions would be seen as doing more harm than good—also applies in cases challenging retirement plan fees.

The university wants the Supreme Court to affirm a 2020 decision by the U.S. Court of Appeals for the Seventh Circuit that rejected a proposed class challenge to the school’s retirement plan fees and investment lineup. Last month, the federal government filed a brief arguing that the case should be revived.

The high court’s ruling—which is expected to be issued by next June—could determine what information retirement plan participants must include in their complaints to move forward with ERISA class actions challenging plan fees. These lawsuits have exploded in recent years, with more than 100 employers being sued in the past two years alone. At least nine pending 401(k) challenges have been put on hold pending the Supreme Court’s ruling, according to a Bloomberg Law analysis.

Northwestern represents itself, along with Willkie Farr & Gallagher LLP and Latham & Watkins LLP. The plan participants are represented by Schlichter Bogard & Denton LLP and Kellogg, Hansen, Todd, Figel & Frederick PLLC.

The case is Hughes v. Northwestern Univ., U.S., No. 19-1401, brief for respondents 10/21/21.