Hughes vs. Northwestern: ERISA Ruling Issued

The US Supreme Court has made a much-anticipated ruling in the Hughes vs. Northwestern case, and it has significant repercussions for fiduciaries.

Three current and former employees of Northwestern University brought the case to the Court. The plaintiffs alleged that the University and its retirement committee violated their statutory duty of prudence by failing to monitor and control recordkeeping fees, offering mutual funds and annuities that carried higher fees than those in the same class, and confusing investors by providing too many options (nearly 400 at a time). 

The Ruling

The Supreme Court ruled unanimously, clarifying some of the claims against ERISA (Employee Retirement Income Security Act of 1974). The Court held:

What it Means For Plan Fiduciaries and Administrators

The following guidance from Travelers sheds some light on what the Supreme Court’s ruling means for plan fiduciaries and administrators.

The message here is clear; it is all about balance regarding investment options. Having too many investment choices may be just as detrimental as not having enough. Though there is no set minimum or maximum for providing investment options, a regular and independent review of these choices is a must for plan administrators.

More expensive price tags for programs may be reasonable if more services are available or the quality of investments is higher. While a prudent plan advisor should compare fees from time to time, a fee structure must always be chosen based on the prudent person standard laid out by ERISA. Plan fiduciaries uphold their duties “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.”

When it comes to retail vs. institutional plans, the duty remains the same. Offering just one plan or both does not necessarily dictate a violation as long as the administrator conducts their own evaluation to determine which investments may be prudently included in the plan’s menu of options. Imprudent investments should be removed within a reasonable amount of time.

What to Do?


This latest ruling from the Supreme Court may require some thought and deliberation from plan fiduciaries and administrators. If you have any questions or want to learn more, talk to your trusted RCM&D advisor today.