Sixth Circuit Hands Win to Plan Sponsors in Fiduciary Breach Lawsuit

In the first published appeals court decision that applies the Supreme Court's Hughes v. Northwestern Universitydecision, the Sixth Circuit held that ERISA does not give the courts any type of broad license to second-guess the investment decisions of retirement plans. In this case, the plaintiffs were participants who claimed the plan breached their fiduciary duties by offering actively managed investment options, rather than lower-cost index options that performed better. They also claimed the plan fiduciaries allowed the plan to pay excessive recordkeeping and management fees. Under the Sixth Circuit's logic, while the actively managed funds may be more expensive, that alone wouldn't be enough to make them an imprudent investment decision. In fact, the court reasoned that denying participants the option to invest in actively managed funds may be imprudent. With respect to the pleading standard in these cases, the court found that it's not enough for participants to point to funds that performed better. Instead, plaintiffs are required to prove that the investment was imprudent from the moment it was selected. With respect to the excessive fee claim, the court held that plaintiffs are required to establish context showing that the services provided by the plan are substantially equivalent to the plaintiffs' lower-cost comparables. For more information on the obligations of plan fiduciaries, visit Tax Facts Online. : Q 4128