Retirement plan sponsors everywhere Monday got what is almost certainly unwelcome news: The Supreme Court overturned lower courts' dismissals of a long-running case against Northwestern University.
The court ruled unanimously, excluding Justice Amy Comey Barrett, who did not participate, that the Seventh Circuit Court of Appeals erred in its analysis that led it to uphold a dismissal granted by the district court.
In short, the lower courts paid too much attention to whether the Northwestern plans' inclusion of some low-cost options is sufficient to show the fiduciaries abided by their duties under the Employee Retirement Income Security Act.
“The Seventh Circuit’s exclusive focus on investor choice elided this aspect of the duty of prudence,” the order read. “The court maintained the same mistaken focus in rejecting petitioners’ claims with respect to record-keeping fees on the grounds that plan participants could have chosen investment options with lower expenses.”
The justices kicked the case back to the Seventh Circuit, directing the appellate judges to “reevaluate the allegations as a whole, considering whether petitioners have plausibly alleged a violation of the duty of prudence as articulated in Tibble under applicable pleading standards.”
Several years ago, the Supreme Court found in the landmark Tibble v. Edison International case that plan fiduciaries have an ongoing duty to monitor plan investments.
In the Northwestern case, which was filed in 2016, the plaintiffs alleged that the school ran afoul of ERISA by opting for investment options and plan services with higher-than-necessary fees.
“In rejecting petitioners’ allegations, the Seventh Circuit did not apply Tibble’s guidance but instead erroneously focused on another component of the duty of prudence: a fiduciary’s obligation to assemble a diverse menu of options,” today’s order read. “But respondents’ provision of an adequate array of investment choices, including the lower cost investments plaintiffs wanted, does not excuse their allegedly imprudent decisions.”
The case against Northwestern, similar to numerous other lawsuits brought in recent years against 401(k) and 403(b) plan sponsors, has relied on the fact that cheaper options were available than those used within the plan. Whether that alone is sufficient to state a claim has been disputed in the case, and that detail is critical to litigators. Because plan committee meetings and notes are usually not public, prior to discovery, plaintiffs’ law firms have little or no direct insight into fiduciaries’ processes for selecting investments and services.
“At times, the circumstances facing an ERISA fiduciary will implicate difficult tradeoffs, and courts must give due regard to the range of reasonable judgments a fiduciary may make based on her experience and expertise,” the order read.
Chasing productivity is one thing, but when you're cutting corners, missing details, and making mistakes, it's time to take a step back.
It is not clear how many employees will be affected, but none of the private partnership’s 20,000 financial advisors will see their jobs at risk.
The historic summer sitting saw a roughly two-thirds pass rate, with most CFP hopefuls falling in the under-40 age group.
"The greed and deception of this Ponzi scheme has resulted in the same way they have throughout history," said Daniel Brubaker, U.S. Postal Inspection Service inspector in charge.
Elsewhere, an advisor formerly with a Commonwealth affiliate firm is launching her own independent practice with an Osaic OSJ.
Stan Gregor, Chairman & CEO of Summit Financial Holdings, explores how RIAs can meet growing demand for family office-style services among mass affluent clients through tax-first planning, technology, and collaboration—positioning firms for long-term success
Chris Vizzi, Co-Founder & Partner of South Coast Investment Advisors, LLC, shares how 2025 estate tax changes—$13.99M per person—offer more than tax savings. Learn how to pass on purpose, values, and vision to unite generations and give wealth lasting meaning