595 U.S. 170
SCOTUS2022Background
- Northwestern administered two defined-contribution retirement plans whose participants must choose investments from a menu set by plan fiduciaries.
- Petitioners (three current/former employees) alleged fiduciaries (Northwestern and plan officials) breached ERISA’s duty of prudence by: (1) retaining recordkeepers charging excessive fees; (2) offering higher‑cost “retail” share classes instead of cheaper identical “institutional” classes; and (3) maintaining an excessive menu (400+ options) that likely confused participants.
- District Court dismissed the amended complaint and denied leave to amend; the Seventh Circuit affirmed the dismissal.
- The Seventh Circuit relied heavily on the fact that low‑cost index options were available to participants and that participants ultimately chose their investments.
- The Supreme Court granted certiorari, held the Seventh Circuit erred by excusing fiduciary monitoring based on participant choice, vacated the judgment, and remanded for reassessment under the duty-to-monitor framework from Tibble.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Fiduciary duty to monitor/remove imprudent investments (retail vs institutional share classes) | Fiduciaries offered higher‑cost retail share classes when identical lower‑cost institutional classes were available and failed to remove imprudent options. | Availability of low‑cost funds on the menu and participants’ ultimate investment choices mean no imprudence. | Court: Participant choice does not absolve fiduciaries; they must independently monitor and remove imprudent investments (vacated and remanded). |
| Excessive recordkeeping fees | Fiduciaries failed to monitor and control recordkeeping costs, resulting in unreasonably high fees to participants. | Participants could choose low‑expense investments, so recordkeeping expenses were within participants’ control. | Court: Seventh Circuit erred to treat fees as participant‑controlled; remand to evaluate under Tibble whether duty breached. |
| Overly large menu causing confusion | Offering 400+ options likely confused participants and led to poor outcomes; fiduciaries should have pruned imprudent choices. | Providing a diversified/adequate array (including low‑cost options) satisfied fiduciary obligations. | Court: Size/diversity of menu does not excuse failing to remove imprudent options; remand for context‑specific inquiry. |
| Pleading standard on motion to dismiss | The amended complaint plausibly alleges a breach of the duty of prudence. | Dismissal was proper as a matter of law. | Court: Vacated dismissal; directed Seventh Circuit to reassess plausibility under Twombly/Iqbal and Tibble’s continuing‑monitoring duty. |
Key Cases Cited
- Tibble v. Edison Int'l, 575 U.S. 523 (2015) (ERISA fiduciary has a continuing duty to monitor investments and remove imprudent ones)
- Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409 (2014) (prudence inquiry is context‑specific and courts must account for fiduciary judgment and tradeoffs)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard: factual allegations must state a plausible claim)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading standard: claims must be plausible, not merely conceivable)
- Divane v. Northwestern Univ., 953 F.3d 980 (7th Cir. 2020) (Seventh Circuit decision affirming dismissal based on availability of low‑cost options; vacated and remanded)