Supremes tackles ERISA excessive fees case

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The country’s highest court has agreed to hear a case that the Schlichter Bogard & Denton law firm says has a “chilling effect” on disputes over excessive fees.

The district court ruled in favor of the plan’s fiduciary defendants in March 2018 and the appeals court upheld that decision in 2020. About a month ago, the federal government, in response to a request from the Supreme Court, said the court should take up the case and resolve the issues it presents.

The problems)

The issue that the plaintiffs, represented by the law firm Schlichter Bogard & Denton, want the Supreme Court to resolve is, they say, a split in the district courts as to the standard to be applied in such cases. Their request for review notes that “the Seventh Circuit rejected the Applicants’ ERISA claims for reckless management of the pension scheme, even though the Third and Eighth Circuits allowed lawsuits with virtually identical allegations, and the Ninth Circuit also upheld similar claims. “This, they assert, is” … not a factual disagreement as to whether the specific claims at issue remove the plea bar “, but rather, they claim that it it is “a legal disagreement on where this obstacle should be placed”.

The plaintiffs argued that “most courts have rightly held” that at the pleading stage, “ERISA plaintiffs are entitled to a plausible inference that excessive costs result from imprudent management”. Complainants argue that “ERISA fee litigation has become an increasingly common mechanism for employees and retirees to seek compensation for losses caused by reckless management and to encourage plan trustees to improve their performance. practices “and” the question here is whether these lawsuits can continue or whether they will be cut off by insurmountable pleading standards.

Case history

The original lawsuit, filed against Northwestern University in 2016 by the law firm Schlichter Bogard & Denton, argued that Northwestern had “eliminated hundreds of mutual funds provided to plan members and selected a tiered structure. consisting of a limited base set of 32 investment options. ”, Comprising five levels: a TDF level, the second five index funds, the third consisting of 26 actively managed mutual funds and a separate insurance account, and an SDBA. However, the lawsuit noted that Northwestern continued to contract with two separate archivists (TIAA-CREF and Fidelity) for the pension plan, and only consolidated the voluntary savings plan to one registrar (TIAA-CREF ) at the end of 2012. The lawsuit also challenged. with the alleged inability of the plan’s trustees to negotiate a better deal based on its status as a “mega” plan, to present participants with the “virtually impossible burden” of deciding where to invest their money (due to too many choices of investment), and to include active fund choices when passive alternatives were available.

What it might mean

In recommending that the Supreme Court rule on this case, the federal government said that this case “… reflects a different (and incorrect) understanding of the substantive obligations that ERISA places on plan trustees.” They noted that the Seventh Circuit determined that because applicants had access to certain low-cost investment options, they could not object to the Trustees’ decision to offer other investment vehicles that would have resulted in unreasonably high administration or record keeping costs – a position inconsistent with that of the Eighth Circuit – and apparently that of the Department of Labor.

“The case provides this Court with an opportunity to clarify that ERISA requires trustees to work actively to limit plan expenses and eliminate reckless investments, and that trustees will not be relieved of these responsibilities.” on the grounds that they selected some (or even several) other prudent investments for a plan.

The case is Hughes v. Northwestern Univ., USA, # 19-1401, certiorari granted 7/2/21.


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