Duane Morris ERISA Class Action Review – 2024

information about that decision-making process. Courts have struggled to develop and apply a clear pleading standard for such cases and, consequently, their rulings are sometimes difficult to reconcile. 2. The Impact Of Hughes v. Northwestern On Rule 12(b)(6) Rulings In 2022, both sides of the ERISA bar hoped that the U.S. Supreme Court would offer a measure of clarity in Hughes, et al. v. Northwestern University, 142 S. Ct. 737 (2022). Although the Supreme Court issued a rare 8-0 decision (Justice Barrett did not participate), the opinion failed to clarify any of the issues surrounding the pleading standard in these cases. Rather, the Supreme Court issued a narrow ruling that offered only nominal guidance to lower courts. Hughes centered on allegations from a group of university employees that their retirement plan had offered needlessly expensive options and charged excessive recordkeeping fees. Affirming the district court ’ s dismissal of the claims, the Seventh Circuit held that plaintiffs’ allegations were insufficient as a matter of law. In part, the Seventh Circuit reasoned that because defendants offered a number of low-cost investment options, its inclusion of other, more expensive options did not constitute a breach of the duty of prudence. While this was only one component of the Seventh Circuit ’ s decision, the Supreme Court framed it as an inappropriate “categorical rule” that was “inconsistent with the context-specific inquiry that the ERISA requires and fails to take into account respondents’ duty to monitor all plan investments and remove any imprudent ones. As a result, the Supreme Court vacated the decision in its entirety. Id. at 740. While the Supreme Court acknowledged that “the circumstances facing an ERISA fiduciary will implicate difficult tradeoffs” and that “courts must give due regard to the range of reasonable judgments a fiduciary may make based on her experience and expertise,” it failed to clarify more broadly a clear pleading standard for breach of fiduciary duty claims. Id. at 742. In the wake of Hughes , federal courts have continued to reach inconsistent results as they try to find their way through this murky area. It remains true that courts will generally dismiss a duty of prudence claim if the plaintiff merely argues that a plan has underperformed the market without pointing to specific bad decisions and/or providing detailed comparator allegations to establish a defect in the challenged fiduciary processes. However, the precise threshold for plausibility remains unclear. For example, the Seventh Circuit ’ s decision on remand from the Supreme Court ’ s decision in Hughes demonstrates the ruling ’ s failure to clarify very much. In March 2023, the Seventh Circuit issued its remand decision in Hughes, et al. v. Northwestern University , 63 F.4th 615 (7th Cir. 2023). The Seventh Circuit opined that the Supreme Court in Hughes did not render revenue sharing a per se violation of the ERISA, did not require fiduciaries “to scour the market to find and offer the cheapest fund possible,” and did not disallow plans to offer a wide variety of funds. Hughes , 63 F.4th at 625-26. However, the Seventh Circuit seemed clearest on what the Supreme Court did not do and reversed the dismissal of claimed breaches of the duty of prudence due to (i) excessive recordkeeping fees and (ii) an imprudent share-class fund in the absence of a “concrete standard” of plausibility required for a claim to survive a motion to dismiss. Id. at 626. In reversing the dismissal of these claims, the Seventh Circuit explained that the Supreme Court demanded a context-specific determination of whether the plaintiffs have made a plausible claim of a breach of the duty of prudence under the standard of plausibility articulated in Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 570 (2007), and Ashcroft v. Iqbal , 556 U.S. 662, 678 (2009). The Seventh Circuit re-examined its prior reasons for dismissing the plaintiffs’ claims in light of the Supreme Court ’ s decision. Id. at 631. First, the Seventh Circuit discussed its prior finding that plan participants could keep recordkeeping costs low by selecting low-cost funds themselves, determining that the Supreme Court foreclosed that argument by rejecting dismissal of a claim of breach of the duty of prudence based on participant control. Id. Second, the Seventh Circuit explained that although the presence of revenue sharing does not amount to a per se violation of ERISA, under the Supreme Court ’ s ruling, neither does its presence eliminate the possibility of an ERISA violation. Id.

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