Over the last two years, approximately 150 ERISA lawsuits challenging purportedly excessive retirement plan fees have been filed in U.S. federal court. However, more than a dozen of those cases had been put on hold pending a recent Supreme Court case — Hughes v. Northwestern University — examining the plausibility of a breach of fiduciary duty claim by current and former university retirement plan participants. In January, SCOTUS delivered its opinion, ruling that the petitioners, originally dismissed by a district court and upheld by the U.S. Court of Appeals for the Seventh Circuit, did in fact plausibly state their claim. It vacated the Seventh Court ruling and remanded the case for further review.
Among other alleged fiduciary breaches, the defendants were accused of failing to monitor and control excessive recordkeeping fees and offering retail share classes of otherwise identical investments with lower fees. A central question to the case, in essence, was: If the plan offers sufficient investment choice, can this excuse the inclusion of a “bad apple” in the lineup? SCOTUS ruled that providing sufficient options does not automatically exculpate fiduciaries from imprudent actions. While the decision will likely do little to potentially curb the recent spate of 401(k) litigation, plan sponsors will likely take note of some specific language in in the opinion penned by Justice Sonya Sotomayor.
“At times, the circumstances facing an ERISA fiduciary will implicate difficult tradeoffs,” Sotomayor wrote, “and courts must give due regard to the range of reasonable judgments a fiduciary may make based on her experience and expertise.” In other words, the high court’s opinion allows for a contextual approach to fiduciary decision making, including “difficult tradeoffs” that may, at times, justify higher plan fees.
Nonetheless, the court’s decision reaffirms that reasonableness of fees must be maintained across the board, regardless of investment choices offered to participants. Therefore, retirement plan advisors looking to help their clients mitigate fiduciary risk in this area will be well served by assembling a versatile benchmarking toolkit to draw upon.
PlanFees allows advisors to keep closer tabs on fees with a quick and easy two-minute customizable benchmark of investment, recordkeeping, administrative and advisory fees. PlanFees is the go-to tool for top advisors looking to perform an annual fee checkup or on-the-spot assessment when called for in between the customary three- to five-year interval. Drawing from a robust database of over 60,000 retirement plans with more than $500 billion in total assets, you can count on the reliability of the data in your PlanFees report. The platform enables full customization according to plan size and number of participants to help ensure a true, apples to apples comparison. PlanFees can help advisors get a more frequent and accurate read on fees — and encourage better plan outcomes for sponsors and participants.