The Supreme Court puts fiduciaries on notice - up next, target date funds

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The growth of ERISA litigation over the past years has plagued corporate America: it’s expensive, time consuming and a drain on corporate resources. Any hopes that the Supreme Court might have squelched this trend in Hughes v. Northwestern University were surely dashed after the Court’s unanimous decision. The defendant plan sponsor was denied its motion to dismiss, and will be forced to prove that its fiduciary decisions were prudent. The case proceeds, and likely, so will many others.

ERISA litigators will parse the decision because questions were left unanswered concerning pleading standards – the technical domain of ERISA litigators. Practically speaking, the Court spoke with a unified voice. Fiduciaries have an ongoing duty to monitor the prudence of investment options in a 401(k) plan and the determination of prudence will require a “context specific” analysis. The reference to “context specific” determinations is legalese for indicating that a trial will be warranted to assess the context of any fiduciary decision. In effect, plan sponsors are going to have a harder time dismissing these lawsuits.