Duane Morris ERISA Class Action Review – 2024

The Seventh Circuit narrowed its inquiry to determine whether “plaintiffs have pleaded sufficient facts to render it plausible” that Northwestern ’ s unreasonable recordkeeping fees and failure to “take actions that would have reduced such fees.” Id. The Seventh Circuit found that the plaintiffs’ identification of comparator university plans with similar benefits and lower recordkeeping fees, together with its contention that “recordkeeping services are fungible and that the market for them is highly competitive,” were sufficient for their claims of excessive recordkeeping fees and of investment in imprudent share-class funds to “cross the line from possibility to plausibility.” Id. at 633. The Seventh Circuit declined to require the plaintiffs to “prove that another record-keeper would have offered a lower fee or that consolidation was actually available,” explaining that doing so would be holding the plaintiffs to a higher standard than that required by the Supreme Court in Hughes . Id. The Seventh Circuit was sure to mention, however, that “[c]laims for excessive recordkeeping fees in a future case may or may not survive based on different pleadings and the specific circumstances facing the ERISA fiduciary.” Id. Similarly, under the Supreme Court ’ s standard in Hughes , the Seventh Circuit found allegations of the plan ’ s imprudent fund retention and offering of annuities with high expense ratios were sufficient for plaintiffs to plead their claim of maintenance of imprudent funds because they need only show “cheaper institutional shares were plausibly available.” Id. at 634-35. The Seventh Circuit opined that the claim was substantiated by expert testimony that Northwestern would have had significant bargaining power as a jumbo-retirement plan. Id. at 635. Finally, the Seventh Circuit affirmed dismissal of the plaintiffs’ duty of prudence claim for maintenance of duplicative funds, reasoning that the complaint did not explain how the plaintiffs were actually confused and injured by the offering of duplicative funds. Id. at 637. Beyond the Hughes case, the uncertain impact of the Supreme Court ’ s decision is apparent in the varied approaches to analyzing 12(b)(6) motions taken by other federal courts in closely-watched cases. 3. The Totality Of Circumstances Approach For example, in Stengl, et al. v. L3Harris Technologies, Inc. , 2023 U.S. Dist. LEXIS 50692 (M.D. Fla. Mar. 24, 2023), the court cited Hughes in connection with its application of a novel “totality of circumstances” standard to evaluate the plausibility of the plaintiffs’ claims. In so doing, it purported to evaluate the ERISA claims “as a whole” and “in context.” Id. at *35. Specifically, the court considered the plaintiffs’ claims that the defendants had been imprudent by: (i) choosing funds with excessive management fees, (ii) failing to choose the fee class with the lowest expense ratio, (iii) failing to investigate low-cost collective investment trusts, (iv) failing to use modern portfolio tools, (v) violating the Plan ’ s investment policy statement, (vi) using actively managed funds, (vii) failing to diversify, and (viii) incurring excessive recordkeeping costs. Id. at *6-15. In denying the defendants’ motion to dismiss, the court “doubt[ed] that some of the individual allegations here by themselves are enough to state a claim, [but] in sum total [found] it plausible that the defendant Investment Committee ’ s process was flawed.” Id. at *33. The court clarified its application of the Hughes decision by explaining “this is not a case where nothing plus nothing adds up to something; instead, the individual well-pled allegations accumulate as fractional parts of the whole, at some point crossing the plausibility line.” Id. at *33-34. In Lopez, et al. v. Embry-Riddle Aeronautical University, Inc. , 2023 U.S. Dist. LEXIS 197183 (M.D. Fla. July 12, 2023), the court again reasoned that the totality of circumstances “warrant[ed] additional fact- finding.” Id. at 28 (citing Hughes , 142 S. Ct. at 742). The plaintiffs alleged that the defendant breached its duty of prudence by: (i) selecting and maintaining high-cost investments compared to similar options, (ii) failing to investigate lower-cost share classes of certain mutual funds, and (iii) failing to monitor excessive recordkeeping fees. Id. at 26. In denying the motion to dismiss, the court explained that the plausibility standard required at the pleading stage “does not equate to a standard of definitiveness,” and instead found that the question of whether the defendant breached its duty was a fact-intensive question, the

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