Supreme Court Delivers Win for Retirement-Plan Participants

Recently in Hughes v. Northwestern University, the Supreme Court issued a favorable decision for participants in employer-sponsored retirement plans, which are governed by the Employee Retirement Income Security Act of 1974 (ERISA).

In Hughes, current and former employees who were participants in Northwestern’s defined-contribution retirement plan filed a class-action alleging that Northwestern violated its fiduciary duty to the plan participants (a requirement that the people running the retirement plan act in the best interests of the plan participants). Specifically, they alleged that the people running the plan did not negotiate low enough fees for record-keeping services and included to many high-cost investment options.

The lower courts rejected the plan participants’ claims because at least some of the options Northwestern offered were sufficiently well-designed to satisfy the university’s duties to the plan participants.

The Supreme Court reversed the lower courts’ decisions because, even if some of the investment options were satisfactory, the plan fiduciaries also had a duty to weed out bad choices that were not good options for the plan participants. Thus, it was not enough for the plan to offer some good choices; it also had to continually monitor the plan and remove the bad choices. The Supreme Court said, “If the fiduciaries fail to remove an imprudent investment from the plan within a reasonable time, they breach their duty.”

This decision will likely be a very important one for employees and retirees who participate in defined contribution 401(k) and 403(b) plans because it will potentially require the plans to be more diligent about what investment opportunities the plans offer.

If you think your retirement plan is being mismanaged, the attorneys at Lebau & Neuworth may be able to help. Contact us at 1.888.456.2529 or lebauneuworth.com/contact-us.