HUGHES et al. v. NORTHWESTERN UNIVERSITY et al.
Certiorari To The United States Court Of Appeals For The Seventh Circuit
No. 19–1401. Argued December 6, 2021—Decided January 24, 2022
Respondents administer retirement plans on behalf of current and former Northwestern University employees, including petitioners here. The plans are defined-contribution plans governed by the Employee Retirement Income Security Act of 1974 (ERISA), under which each participant chooses an individual investment mix from a menu of options selected by the plan administrators. Petitioners sued respondents claiming that respondents violated ERISA’s duty of prudence required of all plan fiduciaries by: (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 District Court granted respondents’ motion to dismiss, and the Seventh Circuit affirmed, concluding that petitioners’ allegations fail as a matter of law.
Held: 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. Tibble concerned allegations that plan fiduciaries had offered “higher priced retail-class mutual funds as Plan investments when materially identical lower priced institutional-class mutual funds were available.” Id., at 525–526. The Tibble Court concluded that the plaintiffs had identified a potential violation with respect to certain funds because “a fiduciary is required to conduct a regular review of its investment.” Id., at 528. Tibble’s discussion of the continuing duty to monitor plan investments applies here. Petitioners allege that respondents’ failure to monitor investments prudently—by retaining recordkeepers that charged excessive fees, offering options likely to confuse investors, and neglecting to provide cheaper and otherwise-identical alternative investments—resulted in respondents failing to remove imprudent investments from the menu of investment offerings. In rejecting petitioners’ allegations, the Seventh Circuit did not apply Tibble’s guidance but instead erroneously focused on another component of the duty of prudence: a fiduciary’s obligation to assemble a diverse menu of options. But respondents’ provision of an adequate array of investment choices, including the lower cost investments plaintiffs wanted, does not excuse their allegedly imprudent decisions. Even in a defined-contribution plan where participants choose their investments, Tibble instructs that plan fiduciaries must conduct their own independent evaluation to determine which investments may be prudently included in the plan’s menu of options. See id., at 529–530. If the fiduciaries fail to remove an imprudent investment from the plan within a reasonable time, they breach their duty. The Seventh Circuit’s exclusive focus on investor choice elided this aspect of the duty of prudence. The court maintained the same mistaken focus in rejecting petitioners’ claims with respect to recordkeeping fees on the grounds that plan participants could have chosen investment options with lower expenses. The Court vacates the judgment below so that the Seventh Circuit may reevaluate the allegations as a whole, considering whether petitioners have plausibly alleged a violation of the duty of prudence as articulated in Tibble under applicable pleading standards. The content of the duty of prudence turns on “the circumstances . . . prevailing” at the time the fiduciary acts, 29 U. S. C. §1104(a)(1)(B), so the appropriate inquiry will be context specific. Fifth Third Bancorp v. Dudenhoeffer, 573 U. S. 409, 425. Pp. 4–6.
953 F. 3d 980, vacated and remanded.
Sotomayor, J., delivered the opinion for a unanimous Court. Barrett, J., took no part in the consideration or decision of this case.