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On Monday, January 24, 2022, the United States Supreme Court unanimously overruled the Seventh Circuit’s decision to dismiss the case of Hughes et al v. Northwestern University et al. This highly anticipated ruling by the nation’s highest court held that “The Seventh Circuit erred in relying on the participants’ ultimate choice over their investments to excuse allegedly imprudent decisions by respondents. Determining whether petitioners state plausible claims against plan fiduciaries for violations of ERISA’s duty of prudence requires a context-specific inquiry of the fiduciaries’ continuing duty to monitor investments and to remove imprudent ones as articulated in Tibble v. Edison Int’l, 575 U. S. 523.”

The specific case of Hughes deals with Northwestern’s alleged: “(1) failing to monitor and control recordkeeping fees, resulting in unreasonably high costs to plan participants; (2) offering mutual funds and annuities in the form of ‘retail’ share classes that carried higher fees than those charged by otherwise identical share classes of the same investments; and (3) offering options that were likely to confuse investors.”

The Supreme Court did not rule on the viability of Hughes claim nor on whether the case should be heard. It just stated that the Seventh Circuit cannot dismiss the case in the manner which it did. The Seventh Circuit must now reconsider whether to dismiss the case. It may still rule to dismiss, but for other reasons.

Despite the nature of the Hughes case, the wording in the Supreme Court decision may have an impact on how other 401k cases are treated.

“Since the pleading standard for breaches of fiduciary duty are context-specific, as the Supreme Court unanimously determined, it will be more difficult to have such claims dismissed at the motion to dismiss stage, says Marcia Wagner of The Wagner Law Group in Boston, Massachusetts.”

By a striking coincidence, two stories appeared last week that, together with the Supreme Court ruling, might cause 401k plan sponsors to grow concerned about the Target Date Funds (TDFs) now consuming so much of their plans’ assets.

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