Hughes v. Northwestern University

Participants in Northwestern University's 403(b) retirement plan sued the university and its plan fiduciaries, alleging violations of the Employee Retirement Income Security Act (ERISA). They claimed the fiduciaries allowed excessive recordkeeping fees, retained high-cost investment options, and offered too many confusing funds, thereby breaching their duty of prudence. The U.S. Court of Appeals for the Seventh Circuit affirmed the dismissal of the complaint, reasoning that the plan's wide array of low-cost choices insulated fiduciaries from liability. On January 24, 2022, the U.S. Supreme Court unanimously reversed that decision, holding that the appeals court applied an incorrect pleading standard. The Court explained that fiduciaries must monitor every investment option and cannot escape scrutiny simply by providing a broad menu of funds. The case was remanded for further proceedings consistent with the opinion.

The United States Supreme Court unanimously reversed the Seventh Circuit's judgment and remanded the case. The Court held that the lower court erred by demanding that plaintiffs show the entire plan was so flawed as to preclude any reasonable fiduciary from maintaining the challenged options. Fiduciaries must evaluate each investment independently, and participants are entitled to present targeted allegations of imprudence.

Whether ERISA plan fiduciaries are required to monitor and remove imprudent investment options even when the plan offers a diverse range of alternatives, including low-cost funds, and what pleading standard applies to such excessive-fee claims.

The decision significantly bolstered participants' ability to challenge high fees and poorly performing retirement plan investments. It clarified that fiduciaries cannot avoid liability solely by offering a vast menu of options, thus reinforcing strict oversight obligations. The ruling prompted universities, corporations, and other plan sponsors to reassess their investment lineups, administrative costs, and monitoring processes. It also set a critical precedent for a wave of similar ERISA lawsuits nationwide, signaling that courts must examine the prudence of each disputed fund rather than dismissing claims outright.