953 F.3d 980
7th Cir.2020Background
- Plaintiffs (participants in Northwestern University’s defined-contribution Retirement Plan and Voluntary Savings Plan) sued Northwestern under ERISA for breach of fiduciary duty, alleging imprudent plan design, excessive recordkeeping fees, and prohibited transactions; the district court dismissed and denied leave to amend and a jury demand.
- Northwestern administered the plans and established a Retirement Investment Committee; participants chose investments from a multi-tiered menu.
- Pre-2016 the plans offered hundreds of options (including TIAA-CREF and Fidelity products); in 2016 Northwestern streamlined offerings to ~40 options across four tiers (target-date, index, active funds, brokerage).
- TIAA required that if the plan offered the TIAA Traditional Annuity (a popular fixed annuity with surrender charges) the plan must also offer the CREF Stock Account and use TIAA as recordkeeper for TIAA products; plaintiffs challenged inclusion of the CREF Stock Account and TIAA’s recordkeeping.
- Plaintiffs alleged recordkeeping costs were excessive (favoring a flat per-participant fee of ~$35), argued retail share classes and revenue-sharing were imprudent, and claimed these practices amounted to prohibited transactions under 29 U.S.C. § 1106.
- The Seventh Circuit affirmed dismissal: plaintiffs failed to plausibly allege fiduciary breach or prohibited transactions; denial of leave to amend and right to jury trial were also affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Inclusion of TIAA CREF Stock Account and use of TIAA as recordkeeper | Inclusion and TIAA recordkeeping were imprudent and forced participants into costly products | No participant was required to invest in TIAA products; keeping TIAA preserved access to the attractive Traditional Annuity and avoided surrender charges | No breach: inclusion and recordkeeping were prudent under the circumstances |
| Recordkeeping fees and revenue-sharing structure | Fees were excessive; Northwestern should have negotiated a flat per-participant fee (~$35) or sole recordkeeper | Revenue-sharing and asset-based fees are permissible; participants could avoid higher expense ratios by choosing low-cost funds | No ERISA violation: revenue-sharing and the fee structure are lawful and not per se imprudent (Hecker) |
| Use of multiple recordkeepers / multi-entity arrangement | Multiple recordkeepers increased costs and complexity; fiduciary should have consolidated or used lower-cost structure | Multi-recordkeeper arrangement preserved investment options (e.g., TIAA annuity); ERISA does not mandate a sole recordkeeper or flat fee | No breach: choosing multiple recordkeepers was not imprudent given plan circumstances |
| Breadth of investment menu | Offering many/retail funds overwhelmed participants and allowed expensive options to persist | Plans offered low-cost index funds plaintiffs preferred; participants retained choice to direct investments | No breach: offering a broad menu that includes low-cost options is not per se imprudent (Loomis) |
| Prohibited transactions under §1106(a)(1)(D) | Fees paid to recordkeepers via fund expense ratios were transfers of plan assets benefitting parties in interest | Once mutual-fund fees are collected, they become the fund’s assets; transferring part for recordkeeping is not a transfer of plan assets | Failed to plead a prohibited transaction: plaintiffs did not show fees were plan assets or defendants improperly benefited (Hecker) |
| Denial of leave to file second amended complaint & jury demand | Plaintiffs sought to add four late counts and a jury trial | District court: amendment was untimely, futile, and abandoned; ERISA fiduciary claims are equitable so no jury right | Denial of leave affirmed; no right to jury trial in this equitable ERISA action (CIGNA/Seventh Circuit precedent) |
Key Cases Cited
- Hecker v. Deere & Co., 556 F.3d 575 (7th Cir. 2009) (revenue-sharing/asset-based recordkeeping fees do not per se violate ERISA)
- Loomis v. Exelon Corp., 658 F.3d 667 (7th Cir. 2011) (offering a broad menu of funds, including higher-cost options, is not per se imprudent)
- CIGNA Corp. v. Amara, 563 U.S. 421 (2011) (ERISA fiduciary suits derive from equity; equitable remedies predominate)
- Amgen Inc. v. Harris, 136 S. Ct. 758 (2016) (prudence requires objective, reasonable fiduciary action)
- Renfro v. Unisys Corp., 671 F.3d 314 (3d Cir. 2011) (use of the hypothetical prudent fiduciary standard)
- Braden v. Wal-Mart Stores, Inc., 588 F.3d 585 (8th Cir. 2009) (retail share classes can be imprudent in limited-menu plans)
- Sweda v. Univ. of Pa., 923 F.3d 320 (3d Cir. 2019) (mix/range of options must be considered in context of fiduciary performance)
- Allen v. GreatBanc Trust Co., 835 F.3d 670 (7th Cir. 2016) (pleading standards for prohibited-transaction claims)
- DeBruyne v. Equitable Life Assurance Soc'y of the United States, 920 F.2d 457 (7th Cir. 1990) (investment losses alone do not prove imprudence)