Hughes v. Northwestern University (19-1401)

argument 19-1401

Hughes v. Northwestern University

Supreme Court of the United States 1h 30m 7 speakers 8 chapters transcribed 7 days ago official recording ↗

▲ 0

Transcript

jump: chapters · speakers · find in transcript

Transcript

Transcript generated automatically by AI and may contain errors.

What fiduciary duties does ERISA impose on retirement plan administrators?

John G. Roberts 0:00

We'll hear our argument next in Case 1914-01, Hughes v. Northwestern University.

William H. Frederick 0:07

Mr. Frederick. Thank you, Mr. Chief Justice, and may it please the Court. Wasting beneficiaries' money is imprudent. Congress enacted ERISA to impose a duty Judge Friendly famously said was the highest known to the law, a fiduciary duty. Under ERISA Section 1104, a fiduciary managing assets in a retirement plan must act with prudence, solely in the interests of beneficiaries, incur only reasonable expenses, and act with care, skill, and diligence. The Seventh Circuit erred by announcing a new rule that immunizes ERISA fiduciaries from suit for including imprudent options so long as some of the plan options are prudent. That holding is inconsistent with ERISA's plain text, common law principles, and this Court's precedents.

William H. Frederick 0:59

In Tibble, for example, this Court held that a fiduciary has an ongoing duty to monitor fund options and to remove imprudent ones. Prudence requires fiduciaries to treat plan assets with skill and care. Respondents maintained funds in the plan with retail fees, even though the exact same investment was available with lower institutional fees. Northwestern also failed even to put its record-keeping practices out for competitive bid or to use its enormous bargaining leverage to reduce fees. Long after universities like Caltech, Purdue, Pepperdine, and Loyola Marymount had reformed their plans, Northwestern finally negotiated for lower fees, made institutional share fees available, and consolidated its record-keeping.

William H. Frederick 1:53

Respondents' own actions confirmed the plausibility of Petitioner's complaint. Now, if I could just start with the plain text of the statute, words in 1104, solely in the interest of participants, for the exclusive purpose of providing benefits to participants, defraying reasonable expenses with care, skill, prudence, and diligence under the circumstances then prevailing, those words foreclose the rule announced by the Seventh Circuit. It is not in the sole and exclusive interest of participants to to have to sift through imprudent funds in order to determine which ones are the prudent ones. And yet that is the implication of the Seventh Circuit's rule and the position that the respondents advance here.

William H. Frederick 2:41

In Tibble, in ruling on the statute of limitations question, the Court had to provide enough content for the ongoing duty to monitor imprudent funds and to remove them and in doing so, drew upon common law principles of trust that required similar action to remove imprudent funds. So long as some options are prudent, say the respondents, the fiduciary cannot be sued for the imprudent ones. But that principle provides no check on a fiduciary, and it provides no check on an action or a failure to act in the best interests of the participants. Nor is there a limiting approach or limiting principle to the respondents' approach. They say on page 25 of their brief that one rotten fund is would be enough to give rise to a potential breach of fiduciary duty.

William H. Frederick 3:36

But where do you draw the line after that? The respondents don't give any type of answer to that question, and there is none. In our position, we pleaded here plausible claims for a breach of fiduciary duty. In October of 2016, respondents' own actions confirmed the plausibility of the allegations that they had breached their fiduciary duties prior to that time, They finally consolidated their record keeper. They finally lowered fees. They finally made institutional share classes available. The complaint gives ample detail about all of these allegations compared to what the industry norms were at the time and compared to other universities who had acted six years, in some instances before Northwestern finally got around to responding to the 2007 Department of Labor rule change.

William H. Frederick 4:29

which was seeking to bring 403B plans into accordance and alignment with 401K plans. Now, what Northwestern failed to do as a matter of prudent process was that it failed to use its bargaining leverage, notwithstanding the fact that its plans were in the top 0.2 percent in size of all plans in the country.