Hughes v. Northwestern University

Northwestern University (Northwestern) (defendant) offered eligible employees two retirement-plan options. Both plans were defined-contribution plans, meaning that participants had individual investment accounts funded using pretax contributions from their salaries plus any applicable employer matching. Each participant elected how to invest her retirement funds by choosing from a menu of options compiled by the plan administrators, namely Northwestern, Northwestern’s Retirement Investment Committee, and the individuals responsible for plan administration (collectively, the plan administrators) (defendants). The investment options were subject to certain fees. First, many of the investment options, such as mutual funds and index funds, were subject to fees paid to the funds’ managers for their investment-management services. Second, the plans paid fees for recordkeeping services such as the tracking of account balances, sending of account statements, and provision of information to participants. Three current or former Northwestern employees, including April Hughes (plaintiffs) sued the plan administrators, alleging that the administrators violated a statutory duty of prudence by (1) failing to monitor and control the fees paid for recordkeeping, (2) offering over 400 investment options and therefore confusing participants and causing them to make poor investment choices, and (3) failing to provide cheaper investment options that were otherwise identical to existing options. The plan administrators moved to dismiss the complaint. The district court granted the dismissal. The court of appeals affirmed, reasoning that because the many options available to plan participants included low-cost options, there was no breach of the fiduciary duty of prudence merely because other, less prudent options were also available. The United States Supreme Court granted certiorari.