A federal appeals court in Chicago has revived an ERISA lawsuit against Northwestern University 15 months after the U.S. Supreme Court's pro-participant decision reversed rulings by the appeals court and a U.S. District Court.
The Supreme Court voted 8-0 in January 2022 that the lower courts had failed to recognize that ERISA requires sponsors to "monitor all plan investments and remove any imprudent ones."
The Supreme Court remanded the case to the 7th U.S. Circuit Court of Appeals where a three-judge panel voted March 23 to reinstate two of seven allegations of ERISA violations filed by participants in two university 403(b) plans.
The appeals court sent the case back to the U.S. District Court, Chicago, which, like the appeals court, originally dismissed all allegations in the case of Hughes et al. vs. Northwestern University et al. These courts had ruled that even though plaintiffs had argued about excessive fees in some of the plans' investment options, the participants had a choice of selecting less expensive ones.
The appeals court judges conceded March 23 that the Supreme Court had rejected a so-called "categorical rule" in which "providing some low-cost options eliminates concerns about other investment options being imprudent."
Plaintiffs complained about excessive record-keeping fees and the fiduciaries' failing to select lower-cost shares of mutual funds and annuities.
"Plaintiffs have pleaded enough to cross the line from possibility to plausibility," the appeals court judges wrote in reversing their dismissal of the excessive record-keeping fees allegation.
The judges also told the trial court to review the allegation that fiduciaries violated ERISA by failing to offer lower-cost share classes of mutual funds and annuities.
Based on the Supreme Court's ruling, "we conclude that the share-class claim survives," they wrote. Plaintiffs "have plausibly alleged that Northwestern's failure to swap out retail-class for institutional-class shares was outside the range of reasonable decisions a fiduciary could take."
The plaintiffs filed their initial lawsuit August 2016 and an amended complaint in December 2016. U.S. District Court Judge Jorge L. Alonso dismissed the case in May 2018.
"We find no error" in the District Court's dismissal of the case, the 7th U.S. Circuit Court of Appeals wrote in March 2020.
The participants petitioned the Supreme Court in August 2020, saying the 7th Circuit's decision was contradicted by rulings at two other federal appellate courts, which allowed cases to proceed involving similar complaints against other universities' 403(b) plans.
The Northwestern University Retirement Plan had $4.08 billion in assets, and the Northwestern University Voluntary Savings Plan had $1.08 billion in assets, both as of Dec. 31, 2021, and both are based in Evanston, Ill., according to the plans' most recent Form 5500 filings.
