Amicus Curiae Brief — April Hughes, et al., Petitioners v. Northwestern University, et al.

No. 19-1401

In The Supreme Court of the United States

_______________

APRIL HUGHES, et al.,

Petitioners,

v.

NORTHWESTERN UNIV., et al.,

Respondents.

_________________________

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT

OF APPEALS FOR THE SEVENTH CIRCUIT

__________________________________

BRIEF OF AMICI CURIAE AARP, AARP

FOUNDATION, BETTER MARKETS, INC.,

CONSUMER FEDERATION OF AMERICA,

NATIONAL EMPLOYMENT LAW PROJECT, AND

PENSION RIGHTS CENTER, SUPPORTING

PETITIONERS AND URGING REVERSAL

__________________________________

DARA S. SMITH*

*Counsel of Record

WILLIAM ALVARADO RIVERA

DEAN GRAYBILL

AARP FOUNDATION

601 E Street, NW

Washington, DC 20049

(202) 434-6280

dsmith@aarp.org

STEPHEN HALL

BETTER MARKETS, INC.

1825 K Street, NW

Suite 1080

Washington, DC 20006

(202) 618-6464

shall@bettermarkets.com

Counsel for Amici Curiae

(Counsel continued on inside cover)

DYLAN BRUCE

CONSUMER FEDERATION

OF AMERICA

1620 I Street, NW

Suite 200

Washington, DC 20006

(202) 387-6121

dbruce@consumerfed.org

CATHERINE RUCKELSHAUS

NATIONAL EMPLOYMENT

LAW PROJECT

90 Broad Street, Suite 1100

New York, NY 10004

(646) 693-8221

cruckelshaus@nelp.org

KAREN W. FERGUSON

NORMAN P. STEIN

PENSION RIGHTS CENTER

1050 30th Street, NW

Washington, DC 20007

(202) 296-3776

kferguson@pensionrights.org

nps32@drexel.edu

i

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ....................................... ii

STATEMENT OF INTEREST ................................... 1

SUMMARY OF ARGUMENT .................................... 5

ARGUMENT ............................................................... 7

I.

Fiduciaries Must Eliminate Imprudent

Investment Options Regardless Of The

Range Of Their Other Offerings...................... 7

A.

The Seventh Circuit’s view that

fiduciaries are absolved simply

because participants could have

chosen a different, prudent

investment option is contrary to

this Court’s precedent and

fundamental principles of

fiduciary duty ........................................ 8

B.

Rather than relieve fiduciaries of

the duty to eliminate imprudent

options, a plan’s decision to

include hundreds of investment

options amplifies fiduciaries’

responsibility to avoid confusing

and overwhelming participants .......... 10

ii

II.

Foreclosing Claims Like Hughes’ Would

Impose An Overly Stringent Pleading

Standard That Would Require Plaintiffs

To Plead Information Solely In

Defendants’ Possession, Thus Barring

Meritorious Claims ........................................ 13

III.

Embracing The Seventh Circuit’s

Approach Would Thwart ERISA’sCore

Purpose: To Protect Plan Participants

From Administrators’ Failure To

Perform Their Fiduciary Duties .................... 16

A.

Congress intended ERISA’s

fiduciary duties to be broadly

construed. ............................................. 17

B.

ERISA’s fiduciary duties are more

important than ever because

most employers offer only

defined contribution plans,

participants rely heavily on the

quality of their investments, and

the retirement savings crisis has

escalated. ............................................. 19

C.

ERISA relies on plan participant

enforcement, and, thus, claims

such as Petitioners’ are vital to

the successful enforcement of

ERISA. ................................................. 22

CONCLUSION ......................................................... 24

iii

TABLE OF AUTHORITIES

Cases

Advoc. Health Care Network v. Stapleton,

137 S. Ct. 1652 (2017) ....................................... 1

Ashcroft v. Iqbal,

556 U.S. 662 (2009) ......................................... 14

Bell Atl. Corp. v. Twombly,

550 U.S. 544 (2007). ........................................ 14

Belland v. Pension Ben. Guar. Corp.,

726 F.2d 839 (D.C. Cir. 1984). ........................ 17

Braden v. Wal-Mart Stores, Inc.,

588 F.3d 585 (8th Cir. 2009)........... 6, 14, 16, 23

Brosted v. Unum Life Ins. Co. of Am.,

421 F.3d 459 (7th Cir. 2005). .......................... 13

Cefalu v. B.F. Goodrich Co.,

871 F.2d 1290 (5th Cir. 1989)........................... 1

Divane v. Northwestern Univ.,

953 F.3d 980 (7th Cir. 2020)......................... 7, 8

Farrell v. Auto. Club of Michigan,

870 F.2d 1129 (6th Cir. 1989)......................... 17

Fort Halifax Packing Co., Inc. v. Coyne,

482 U.S. 1 (1987) ............................................. 17

iv

Gobeille v. Liberty Mut. Ins. Co.,

136 S. Ct. 936 (2016) ......................................... 1

Gray v. Citigroup Inc. (In re Citigroup ERISA

Litig.),

662 F.3d 128 (2d Cir. 2011) ............................ 14

Jackson v. Martin Marietta Corp.,

805 F.2d 1498 (11th Cir. 1986)....................... 17

LaRue v. DeWolff, Boberg & Assocs.,

552 U.S. 248 (2008) ..................................... 1, 19

LoPresti v. Terwilliger,

126 F.3d 34 (2d Cir. 1997) .............................. 17

Nachman Corp. v. Pension Benefit Guar. Corp.,

446 U.S. 359 (1980) ......................................... 18

New England Teamsters & Trucking Indus.

Pension Fund v. Sun Cap. Partners III,

LP,

141 S. Ct. 372 (2020) (No. 19-1401)............... 2-3

Pension Benefit Guar. Corp. v. Morgan Stanley

Inv. Mgmt. Inc.,

712 F.3d 705 (2d Cir. 2013) ............................ 14

Shaw v. Delta Air Lines, Inc.,

463 U.S. 85 (1983) ....................................... 6, 17

Tibble v. Edison International,

575 U.S. 523 (2015). ................................ 5, 8, 20

v

Varity Corp. v. Howe,

516 U.S. 489 (1996) ................................... 18, 22

Statutes

Employee Retirement Income Security Act of

1974 (“ERISA”), 29 U.S.C. §§ 1001, et seq. ..... 2

ERISA § 2(b), 29 U.S.C. § 1001(b)........................ 6, 17

ERISA § 502(a); 29 U.S.C. § 1132(a)........................ 22

Legislative History

H.R. Rep. No. 93-1280 (1974) (Conf. Rep.),

reprinted in 1974 U.S.C.C.A.N. 5037 ............. 23

H.R. Rep. No. 93-533, at 17 (1974), reprinted in

2 LEGISLATIVE HISTORY OF THE EMPLOYEE

RETIREMENT INCOME SECURITY ACT 2364 ...... 22

S. Rep. No. 93-127, at 35 (1973), reprinted in 1

LEGISLATIVE HISTORY OF THE EMPLOYEE

RETIREMENT INCOME SECURITY ACT 621

(1976) ............................................................... 22

vi

Other Authorities

Karen L. Handorf & Daniel R. Sutter, Cohen

Milstein, Watch These ERISA Cases in

2019 (Jan. 1, 2019), https://bit.ly/

3DURlHl......................................................... 23

Gary Koenig, You Just Need a Little Nudge,

AARP Bulletin (May 1, 2017), https://

www. aarp.org/money/investing/info2017/behavioral-economics.htm. ................... 11

Jeffrey Lewis et al., EMPLOYEE BENEFITS LAW

xcix-ci (4th ed. 2012) ................................. 17-18

Alicia H. Munnell, Anqi Chen, & Wenliang

Hou, How Widespread Unemployment

Might Affect Retirement Security

(July 2020), https://bit.ly/3khCqNo ............... 20

Alicia H. Munnell, Wenliang Hou, and

Geoffrey T. Sanzenbacher, How Would

More Saving Affect the National

Retirement Risk Index?, Center for

Retirement Research, Boston College

(Oct. 2019), https://bit.ly/35FqyQw .......... 20-21

Symposium, “The Most Glorious Story of

Failure in the Business”: The StudebakerPackard Corporation and the Origins of

ERISA, 49 Buffalo L. Rev. 683 (2001)........... 18

vii

Richard H. Thaler & Shlomo Benartzi, The

Behavioral Economics of Retirement

Savings Behavior, AARP, Jan. 2007,

https://assets.aarp.org/rgcenter/econ/

2007_02_savings.pdf ...................................... 10

John Turner, Designing 401(K) Plans That

Encourage Retirement Savings: Lessons

from Behavioral Finance, AARP Pub.

Pol’y Inst., Mar. 2006, https://assets.

aarp.org/rgcenter/econ/ib80_ pension.pdf. .... 11

University of Michigan Health and Retirement

Study, Aging in the 21st Century:

Challenges and Opportunities for

Americans (2017). .......................................... 20

U.S. Dep’t of Labor, Pwba Task Force On

Assistance To The Public (1992) ................... 23

U.S. Gov’t Accountability Off., GAO-21-357,

401(k) Retirement Plans: Many

Participants Do Not Understand Fee

Information, but DOL Could Take

Additional Steps to Help Them (2021),

https://www.gao.gov/products/gao-21357 .................................................................. 12

U.S. Gov’t Accountability Off., Pension And

Welfare Benefits Admin., GAO-02-232,

Opportunities Exist For Improving

Management Of The Enforcement

Program (2002) .............................................. 23

viii

U.S. Gov’t Accountability Office, Employee

Benefits Security Admin., GAO-07-22,

Enforcement Improvements Made but

Additional Actions Could Further

Enhance Pension Plan Oversight (2007) ....... 23

Holly Yeager, Mutual Fund Fees Still Hard to

Challenge, AARP Bulletin (Apr. 2010),

https://bit.ly/ 3l0Yiy2 ..................................... 21

Edward A. Zelinsky, The Defined Contribution

Paradigm, 114 Yale L.J. 451 (2004).............. 19

1

STATEMENT OF INTEREST 1

AARP is the nation’s largest nonprofit,

nonpartisan organization dedicated to empowering

Americans 50 and older to choose how they live as they

age. With nearly 38 million members and offices in

every state, the District of Columbia, Puerto Rico, and

the U.S. Virgin Islands, AARP works to strengthen

communities and advocate for what matters most to

families, with a focus on financial stability, health

security,

and

personal

fulfillment.

AARP’s

charitable affiliate, AARP Foundation, works to

end senior poverty by helping vulnerable older adults

build economic opportunity.

Among other things, AARP and AARP

Foundation seek to increase the security and

adequacy of older individuals’ public and private

pensions and other employee benefits, through

participation as amici curiae in state and federal

courts, including this Court. 2 One of amici’s main

Pursuant to the Court’s Rule 37.6, amici state that this brief was

not authored in whole or in part by any party or its counsel and

that no person other than amici, its members, or its counsel

contributed any money that was intended to fund the preparation

and submission of this brief. Pursuant to this Court’s Rule 37.2(a),

a letter by petitioner consenting to the filing of amicus briefs is

on file with the Court. Respondent has consented to the filing of

this amicus brief.

1

E.g., Advoc. Health Care Network v. Stapleton, 137 S. Ct.

1652 (2017) (scope of ERISA “church plan” exemption); Gobeille

v. Liberty Mut. Ins. Co., 577 U.S. 312 (2016) (ERISA preemption);

LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S. 248 (2008)

(ERISA’s civil enforcement provision).

2

2

objectives is to ensure that participants receive all of

the benefits that they have been promised in

accordance with the protections of the Employee

Retirement Income Security Act of 1974 (“ERISA”), 29

U.S.C. §§ 1001, et seq. The quality of these workers’

lives in retirement depends substantially on their

ability to obtain the benefits they were promised. To

achieve that goal, amici work to ensure that

fiduciaries manage and administer participants’ plans

prudently and loyally.

Better Markets, Inc. (Better Markets) is a

nonprofit, non-partisan organization that promotes

the public interest in the financial markets through

comment letters, litigation, independent research, and

public advocacy. It fights for reforms that stabilize our

financial system; increase economic prosperity for all

Americans; and protect investors from fraud, abuse,

and conflicts of interest. Better Markets has fought

long and hard to protect Americans’ retirement

savings. For example, through comment letters and

amicus briefs, it has advocated for the adoption of

strong fiduciary standards by the Department of

Labor, as well as the SEC, to prevent financial

advisers with conflicts of interest from siphoning away

billions of dollars a year from Americans’ retirement

accounts. And in this Court, Better Markets has

sought to protect retirement savers by supporting

class actions that seek to hold private equity firms

accountable when they take over a company, abandon

it to bankruptcy, and then withdraw from a

multiemployer pension plan without paying their

portion of the unfunded plan liabilities. See Amicus

Brief of Better Markets, New England Teamsters &

3

Trucking Indus. Pension Fund v. Sun Cap. Partners

III, LP, 141 S. Ct. 372 (2020) (No. 19-1401) (cert.

denied); see generally www.bettermarkets.com

(archiving all comment letters and briefs). The issues

presented in this case similarly involve the ability of

millions of Americans to protect their retirement

savings through private actions under ERISA.

The Consumer Federation of America

(CFA) is an association of non-profit consumer

organizations, established in 1968 to advance

consumer interests through research, advocacy, and

education. Today, nearly 250 of these groups

participate in the federation and govern it through

their representatives on the organization’s Board of

Directors. As an advocacy organization, CFA works to

advance pro-consumer policies on a variety of issues

before Congress, the White House, federal and state

regulatory agencies, state legislatures, and the courts.

CFA’s investor protection work is based upon

the fundamental premise that retail investors,

especially those investing for retirement, deserve fair

treatment in the marketplace. CFA promotes investor

protection by advocating for strong laws and

regulation, encouraging enforcement of existing

investor protection laws, ensuring clear and accurate

disclosures to investors, and principally, supporting

investors’ ability to obtain redress, whether through

the courts or other processes. These protections are

especially vital for investors that have saved through

defined-contribution plans, where their investments

are uniquely vulnerable to lapses in plan oversight,

and whose protection in the marketplace is only

4

achievable by enforcement of the duties that legally

bind their plan fiduciaries.

The National Employment Law Project

(NELP) is a non-profit research and policy

organization that for over 50 years has advocated for

the employment and labor rights of workers earning

low wages. These workers count on every dollar of

their retirement and non-retirement savings to make

ends meet. NELP’s constituents include the millions

of workers and their families in the U.S. who invest

their savings for retirement. These investors are

hardworking individuals who rely on advice for their

economic security. Retail investors, especially small

investors, are generally not aware of the differences

between and among various investment options, and

are too often harmed by weak standards of conduct

that govern the provision of personalized investment

advice.

The Pension Rights Center is a nonprofit

consumer organization that has been working since

1976 to protect and promote the retirement security of

workers, retirees, and their families. The Center

advocates for the interests of retirement plan

participants and beneficiaries before Congress,

administrative agencies, and the courts. Numerous

laws, regulations, and court cases are traceable to

Center initiatives. As the nation’s retirement

landscape has shifted from employer-paid and

employer-guaranteed

traditional

pensions

to

primarily

employee-paid

retirement

savings

arrangements where participants assume investment

risks and responsibilities, judicial attention has

5

increasingly focused on the obligations of plan

fiduciaries to prudently select and monitor investment

options. This scrutiny is critical if 401(k) and 403(b)

plan participants are to obtain reasonable returns, net

of fees, on their contributions. The Pension Rights

Center has testified before Congress and government

agencies, and filed amicus curiae briefs, on the

importance of ensuring that retirement savings plan

investment and management fees are no higher than

necessary, that they are fully disclosed, and that

participants are offered appropriate investments that

are periodically monitored. This case highlights the

critical role played by participants in enforcing these

all-important fiduciary requirements.

SUMMARY OF ARGUMENT

This Court has made clear that inherent in a

fiduciary’s duty of prudence is “a continuing duty to

monitor trust investments and remove imprudent

ones.” Tibble v. Edison Intern., 575 U.S. 523, 530

(2015). The Seventh Circuit’s view that fiduciaries

need not eliminate investment options with

unreasonably high fees and poor performance so long

as another, prudent option is available is inherently

inconsistent with the duty to monitor and remove. It

also rests on a fundamental misunderstanding of a

fiduciary’s duty. While individuals, with proper

guidance, certainly may choose their risk tolerance

and select a preferred type of investment product, a

fiduciary must ensure that no available options in any

category are objectively imprudent. The danger of

doing so is increased when, as in Northwestern’s plan,

the fiduciary offers so many options—over 200, here—

6

that the plan cannot effectively monitor all options,

and inexpert employees will likely be too overwhelmed

and confused to differentiate among products and

make beneficial choices.

In this case, Petitioners have alleged with

appropriate specificity a claim for breach of fiduciary

duty based on excessive fees. For a cause of action

based on a breach of fiduciary duty, at the pleading

stage, “it is sufficient for a plaintiff to plead facts

indirectly showing unlawful behavior,” in part

because “ERISA plaintiffs generally lack the inside

information necessary to make out their claims in

detail unless and until discovery commences.” Braden

v. Wal-Mart Stores, Inc., 588 F.3d 585, 595, 598 (8th

Cir. 2009). In this case, Petitioners pled not only

known facts about Respondents’ specific investment

choices, but also numerous other facts “indirectly

showing unlawful behavior,” such as comparisons

with the approach of similarly situated fiduciaries. No

more is or should be required.

Allowing Petitioners to proceed furthers a key

Congressional purpose in enacting ERISA: to protect

plan participants from fiduciaries’ abuses. ERISA

§ 2(b), 29 U.S.C. § 1001(b); Shaw v. Delta Air Lines,

Inc., 463 U.S. 85, 98-99 (1983). Americans’ retirement

security is increasingly in jeopardy, and defined

contribution plans are the primary way for them to

bridge the current and growing gap between the

resources they will have in retirement and what they

will require to meet their basic needs. Thus, it is more

important than ever that the Court allow claims

policing those plans to cross the judicial threshold.

7

ARGUMENT

I.

FIDUCIARIES

MUST

ELIMINATE

IMPRUDENT INVESTMENT OPTIONS

REGARDLESS OF THE RANGE OF THEIR

OTHER OFFERINGS.

The Seventh Circuit dismissed Petitioners’

claim regarding the plan’s inclusion of the investment

options with excessive fees because “no participant

was required to invest in” those options. Divane, 953

F.3d at 988. In the Court of Appeals’ view, no duty was

breached because “any participant could avoid what

plaintiffs consider to be the problems with those

products

(excessive

recordkeeping

fees

and

underperformance) simply by choosing from hundreds

of other options within a multi-tiered offering system.”

Id.

This analysis fundamentally misunderstands

the nature of fiduciary duty. Such an approach would

provide fiduciaries with a free pass to include any and

all funds that cross their desks as investment options

in the mix. So long as the plan offered any investment

option that benefits participants, it would not matter

if all the other options (including those that

participants

chose)

were

undisputedly

bad

investments—there could be no breach of fiduciary

duty. This is not, and cannot be, the law. Fiduciaries

must remove all imprudent options from their plans,

regardless of the range of options available. In fact,

when the plan offers a large number of options, the

duty to monitor and remove imprudent options

becomes even more crucial.

8

A.

The Seventh Circuit’s view that

fiduciaries are absolved simply

because participants could have

chosen

a

different,

prudent

investment option is contrary to this

Court’s precedent and fundamental

principles of fiduciary duty.

The Seventh Circuit’s approach to breach of

fiduciary duty claims would not only undercut a core

remedial purpose of ERISA—protecting employees’

retirement benefits (see infra, Part III)—but it also

would be inconsistent with the important duty-tomonitor standard this Court established in Tibble v.

Edison Intern., 575 U.S. 523, 530 (2015). As the Court

explained, “the duty of prudence involves a continuing

duty to monitor investments and remove imprudent

ones.” Id. (emphasis added). Performing this duty is

not overly “paternalistic,” as the court of appeals

insisted, Divane, 953 F.3d at 989, but rather a core

responsibility of common law trustees and, thus,

ERISA fiduciaries. Tibble, 575 U.S. at 530.

The Seventh Circuit’s evident view is that

offering an extensive menu of investment options—

even one riddled with bad options—provides an

appropriate “choice” that should be “left . . . to the

people who have the most interest in the outcome.”

Divane, 953 F.3d at 989. That view is sorely

misguided. It is the fiduciary’s responsibility to ensure

that there are no objectively imprudent options (as

described in Section II) on its menu, no matter how

extensive.

9

Indeed, conceptualizing a list of investment

options as a “menu” at all may contribute to this

misapprehension. This analogy evokes an arms-length

transaction in which a restauranteur provides an

array of food choices, and customers are free to select

among them as they desire. The restauranteur is not

responsible for advising customers as to which options

will be better for their diets or which they would prefer

according to their individual tastes. Restauranteurs

may list and even promote costly, non-nutritious items

solely to increase their profits. Fiduciaries offering

investment options, on the other hand, have the

highest duty of care to participants and

beneficiaries—the furthest thing from an arms-length

transaction. They must consider participants’

financial needs and interests and offer—and advise

participants to select—options that will meet those

needs and further those interests. And they must do

this to the exclusion of their own interests or anyone

else’s.

A fiduciary is less akin to a restauranteur and

more like a doctor. Just as a doctor must attend to a

patient’s physical health, a fiduciary must look out for

participants’ financial health. Just as doctor may offer

a range of treatment options to a patient, provided she

explains the risks and benefits of each, likewise,

fiduciaries may recommend a range of investment

products for participants, provided that they disclose

the relevant characteristics of each option. But doctors

may not provide a patient with an extensive list of

potential treatment protocols, leave them to do their

own research about the risks and benefits of each, and

include on the list a therapy that is known to be unsafe

10

or ineffective. If they did, it would be no defense to say

that patients could simply have chosen another

treatment. It is no more appropriate for a fiduciary to

disclaim responsibility for a too-costly, poorperforming investment product because participants

could have chosen a different one. While the choice is

always ultimately up to the patient or participant, the

doctor or fiduciary cannot present them with

ineffective or dangerous options from which to choose.

That is no more “paternalistic” than the common law

trustee’s duty has always been.

B.

Rather than relieve fiduciaries of the

duty to eliminate imprudent options, a

plan’s decision to include hundreds of

investment

options

amplifies

fiduciaries’ responsibility to avoid

confusing

and

overwhelming

participants.

For both participants and fiduciaries, the sheer

number of options in a plan like Northwestern’s can

make it more difficult, if not impossible, to avoid

objectively bad products on the menu. Many

behavioral economics studies, including some in the

context of employee benefit funds, have concluded that

when people are given too many options, they simply

freeze up and make no choice at all. 3 One study found

“a negative correlation between the number of

3

Richard H. Thaler & Shlomo Benartzi, The Behavioral

Economics of Retirement Savings Behavior, AARP, Jan. 2007, at

5 https://assets.aarp.org/rgcenter/econ/2007_02_savings.pdf

(hereinafter, “Thaler and Benartzi”).

11

investment options offered in the plan and

participation rates.” 4 When plans offer more

investment options, a higher rate of prospective

participants choose not to participate. Id.

When employees are already plan participants,

and therefore must make decisions, bad choices tend

to be more common when the plan offers more

investment options. One study found that when the

plan offers multiple options, participants most often

take the “buffet” approach, 5 investing some of their

money into each option. This approach has

diminishing returns as the number of options

increases. Thaler and Benartzi, supra note 3, at 7.

Additionally, when a plan offers too many investment

options for participants to consider or understand

fully, “human inertia often causes [workers] never to

revisit their choices. Over time, their portfolios can

end up being heavily weighted in riskier stocks,

putting their nest egg in jeopardy.” 6

John Turner, Designing 401(K) Plans That Encourage

Retirement Savings: Lessons from Behavioral Finance, AARP

Pub. Pol’y Inst., Mar. 2006, at 6, https://assets.aarp.org/

rgcenter/econ/ib80_pension.pdf.

4

Thaler and Benartzi’s analogy is to a buffet dinner, where if

the number of choices is small, patrons “take a little bit of each

item,” but when the number of options gets large, people have to

devise other simplifying strategies, “such as to take one item from

each category.” Thaler and Benartzi, supra note 3, at 7.

5

Gary Koenig, You Just Need a Little Nudge, AARP Bulletin

(May 1, 2017), https://www.aarp.org/money/investing/info-2017/

behavioral-economics.htm.

6

12

Providing information to plan participants may

not effectively ameliorate this problem. “Many

employers have tried to educate their employees to

make better decisions or supplied tools to help them

improve their choices. The empirical evidence does not

suggest that this can solve the problems . . . raised.”

Thaler and Benartzi at 20. Even with appropriate

monitoring and education, when plan participants

face an overwhelming number of investment options,

they still make bad investment decisions. To make

matters worse, an August 2021 study by the U.S.

Government Accountability Office (GAO) found that

45% of 401(k) plan participants cannot understand fee

disclosure information, and 41% incorrectly believe

that they are not paying any fees at all. U.S. Gov’t

Accountability Off., GAO-21-357, 401(k) Retirement

Plans: Many Participants Do Not Understand Fee

Information, but DOL Could Take Additional Steps to

Help Them (2021), https://www.gao.gov/products/gao21-357. Given this information on the behavioral

science of decision making in the ERISA context, plan

fiduciaries should consider the likelihood that

participants will be unable to make sound decisions

when too many options are offered to them—especially

decisions about whether any given option’s fees are too

high.

This is not to suggest that numerosity alone

would be enough to state a claim for breach of

fiduciary duty or that there is some bright-line

number of options that inherently exceeds the legal

limit. Rather, this evidence makes clear why the

Seventh Circuit’s preference for number of choices

over prudent product selection by fiduciaries is so

13

problematic. At some point the options become so

numerous that two problems arise: not only the

greater inability of employees to prudently choose

among them, but also the greater inability of

fiduciaries to properly monitor them. Certainly, the

multiplicity of options should not be viewed as a

reason to forgive a breach of a fiduciary’s basic duty to

remove bad investments from ERISA pension plans.

To the contrary, having decided to provide

participants with upwards of 200 choices,

Northwestern assumed the responsibility of ensuring

that none of those options were imprudent.

II.

FORECLOSING CLAIMS LIKE HUGHES’

WOULD

IMPOSE

AN

OVERLY

STRINGENT

PLEADING

STANDARD

THAT WOULD REQUIRE PLAINTIFFS TO

PLEAD INFORMATION SOLELY IN

DEFENDANTS’

POSSESSION,

THUS

BARRING MERITORIOUS CLAIMS.

Petitioners have alleged with more than

sufficient detail that the plan fiduciaries breached

their duty of prudence by allowing options with

excessive and unnecessary fees to remain on the plan’s

investment menu. To state a cause of action based on

a breach of fiduciary duty, plaintiffs must plausibly

allege that defendants are plan fiduciaries, that

defendants breached their fiduciary duties, and that

plaintiffs were harmed as a result of the breach.

Brosted v. Unum Life Ins. Co. of Am., 421 F.3d 459,

465 (7th Cir. 2005).

14

With respect to the breach element presented

here, at the pleading stage, “it is sufficient for a

plaintiff to plead facts indirectly showing unlawful

behavior,” in part because “ERISA plaintiffs generally

lack the inside information necessary to make out

their claims in detail unless and until discovery

commences.” Braden v. Wal-Mart Stores, Inc., 588

F.3d 585, 595, 598 (8th Cir. 2009). To satisfy this

standard, plaintiffs may “allege facts that, if proved,

would show that an adequate investigation would

have revealed to a reasonable fiduciary that the

investment at issue was improvident.” Pension Benefit

Guar. Corp. v. Morgan Stanley Inv. Mgmt. Inc., 712

F.3d 705, 718 (2d Cir. 2013) (citing Gray v. Citigroup

Inc. (In re Citigroup ERISA Litig.), 662 F.3d 128, 141

(2d Cir. 2011)). This is sufficient “even absent any

well-pleaded factual allegations relating directly to

the

methods

employed

by

the

ERISA

fiduciary[.]” Pension Benefit Guar. Corp., 712 F.3d at

718. This pleading standard enables plan participants

who have been injured as a result of a breach of

fiduciary duty to fulfill ERISA’s remedial purpose

(see infra, Part III), while still requiring that they

provide

more

than

“mere

conclusory

statements.” See Ashcroft v. Iqbal, 556 U.S. 662, 678

(2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555

(2007).

Excessive fee claims pled at the level of detail

Petitioners alleged here easily clear this bar. For

example, Petitioners alleged dollar values showing

that Respondents charged combined fees of $5 million

per year for the Retirement Plan and Voluntary Plan,

versus the $1.05 million that would have been charged

15

had those fees reflected the market rate. Pet. Br. at 12. The vast difference between the market rate for

recordkeeping fees and the fees paid by these funds

casts in sharp relief the excessive costs imposed by

many of the Plans’ investment options. Moreover,

Petitioners alleged that plan fiduciaries failed to

calculate how much TIAA also received in revenue

sharing and direct payments. Am. Comp. ¶ 248.

Without this information, plan administrators could

not determine whether the recordkeeping fee was

reasonable.

Petitioners further alleged that Respondents

“retained multiple investment options in each asset

class and investment style until October 2016, thereby

depriving the Plans of their ability to qualify for lower

cost share classes of certain investments, while

violating the well-known principle for fiduciaries that

such a high number of investment options causes

participant confusion and inaction.” Id. at ¶ 266. And,

Petitioners pled various means by which the Plan

could have performed better and could have had lower

fees, demonstrating that all were possible under the

circumstances. See Am. Comp. ¶ 109 (“in contrast with

the comprehensive plan reviews conducted by the

similarly situated fiduciaries described [in ¶¶ 45-79]

Defendants failed to adequately engage in a similar

analysis.”); see also ¶¶ 148-152, 154, 183-184, 208,

214-215. These allegations explain with appropriate

specificity the nature of the plan’s fiduciary breach—

to the extent that Petitioners could possibly have

known those facts before discovery.

16

Requiring more before discovery would demand

that plaintiffs meet an unattainable standard: they

would need to plead information such as the processes

and methods that fiduciaries used to arrive at the

challenged decision. As the Eighth Circuit explained

in Braden, this is information typically “kept secret”

and that plaintiffs “could not possibly show at this

stage in the litigation.” 588 F.3d at 602. “It would be

perverse to require plaintiffs bringing [such claims] to

plead facts that remain in the sole control of the

parties who stand accused of wrongdoing.” Id.

III.

EMBRACING THE SEVENTH CIRCUIT’S

APPROACH WOULD THWART ERISA’S

CORE PURPOSE: TO PROTECT PLAN

PARTICIPANTS FROM

ADMINISTRATORS’ FAILURE TO

PERFORM THEIR FIDUCIARY DUTIES.

The United States’ brief in support of certiorari

rightly notes that Respondents’ approach, which the

Seventh Circuit embraced, would improperly “shift

onto plan participants the burden of identifying and

rejecting investments with imprudent fees.” Br. of

United States at 17. Such a shift would undermine the

core purposes of ERISA: to create enforceable

fiduciary duty requirements in the employee benefit

context, and, as the Act’s name suggests, to assure

participants’ retirement income security. Especially

when Americans depend on the quality of their

investments in defined-contribution plans more than

at any time since ERISA’s enactment, the Court

should not deprive participants of their ability to use

17

the remedial tools Congress gave them to secure their

retirement incomes.

A.

Congress

intended

ERISA’s

fiduciary duties to be broadly

construed.

One of ERISA’s core purposes is to remedy

participants’ injuries resulting from a breach of duty

by plan fiduciaries. ERISA § 2(b), 29 U.S.C. § 1001(b);

Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90 (1983)

(“ERISA is a comprehensive statute designed to

promote the interests of employees and their

beneficiaries in employee benefit plans.”); Fort Halifax

Packing Co., Inc. v. Coyne, 482 U.S. 1, 15 (1987)

(“ERISA’s fiduciary standards ‘will prevent abuses of

the special responsibilities borne by those dealing with

plans.’”). Accordingly, Congress intended ERISA’s

fiduciary duties to be construed broadly. See, e.g.,

LoPresti v. Terwilliger, 126 F.3d 34, 40 (2d Cir. 1997)

(“As this Court has recognized, Congress intended

ERISA's definition of fiduciary ‘to be broadly

construed.’”); accord Cefalu v. B.F. Goodrich Co., 871

F.2d 1290, 1294 (5th Cir. 1989); Farrell v. Auto. Club

of Michigan, 870 F.2d 1129, 1134 (6th Cir. 1989);

Jackson v. Martin Marietta Corp., 805 F.2d 1498, 1499

(11th Cir. 1986); Belland v. Pension Ben. Guar. Corp.,

726 F.2d 839, 848 (D.C. Cir. 1984).

The context of ERISA’s enactment makes

particularly clear why this must be so. Before ERISA,

no federal standards required benefit plans, or the

people administering them, to pay promised benefits

to plan participants. See, e.g., Jeffrey Lewis et al.,

18

EMPLOYEE BENEFITS LAW xcix-ci (4th ed. 2012). As a

reaction to events such as the Studebaker Motor

Company’s plant closure, the sale of P. Ballantine and

Sons, the trial of Jimmy Hoffa, and other instances of

kickbacks, embezzlement, and mismanagement

discovered in other benefit plans, Congress wanted to

“make as certain as possible that pension fund assets

would be adequate” to meet expected benefits

payments by requiring that fiduciaries act in the best

interests of participants. Nachman Corp. v. Pension

Benefit Guar. Corp., 446 U.S. 359, 374 n.22, 375

(1980); Symposium, “The Most Glorious Story of

Failure in the Business”: The Studebaker-Packard

Corporation and the Origins of ERISA, 49 BUFFALO L.

REV. 683, 694-695 (2001).

In short, the primary purpose of ERISA and the

fiduciary standard is to protect employees’ assets.

Varity Corp. v. Howe, 516 U.S. 489, 496 (1996)

(“ERISA protects employee pensions and other

benefits by . . . setting forth certain general fiduciary

duties applicable to the management of both pension

and nonpension benefit plans.”). In service of that

goal, fiduciary duties must not be constricted, as they

have been by the Seventh Circuit, but instead must be

applied with a breadth that fulfills Congress’s

remedial intent.

19

B.

ERISA’s fiduciary duties are more

important than ever because most

employers

offer

only

defined

contribution plans, participants rely

heavily on the quality of their

investments, and the retirement

savings crisis has escalated.

The relatively few employees who still

participate in “defined benefit” plans—i.e., traditional

pensions—are guaranteed a known precalculated

stream of retirement income, typically independent of

how the investment markets perform. That is not the

case with “defined contribution” plans, such as 401(k)s

and 403(b)s, which pose the double risk of employees

having to choose investments themselves and then

having to live with the consequences in terms of

uncertain and unpredictable future income. Defined

contribution plans, which now constitute the vast

majority of retirement funds, involve a fundamental

reallocation of investment risk. LaRue v. DeWolff,

Boberg & Assocs., Inc., 552 U.S. 248, 255 n.5 (2008).

With the increasing number of defined contribution

plans, more plan participants bear the risk associated

with the performance of the funds in which their

money is invested. See Edward A. Zelinsky, The

Defined Contribution Paradigm, 114 YALE L.J. 451,

453 (2004) (“The defined benefit configuration

principally assigns risk to the employer because the

employer guarantees the employee a specified benefit,

while the more privatized defined contribution

approach apportions risk to the employee[.]”).

Although defined contribution plans may have

accumulated millions of dollars in the aggregate,

20

individual accounts tend to be modest, and plan

participants rely on them heavily. The quality of plan

performance hugely affects the income that

participants receive upon retirement. Tibble, 575 U.S.

at 530.

That retirement income is now, more than ever,

likely to be insufficient for an increasing portion of the

population. Older Americans are retiring at record

rates. As the Baby Boomer generation ages,

approximately 10,000 individuals retire each day.

University of Michigan Health and Retirement Study,

Aging in the 21st Century: Challenges and

Opportunities for Americans 8 (2017). By 2030, twenty

percent of the U.S. population will be at typical

retirement age. Id.

Yet, Americans are financially unprepared for

retirement. Since the Covid-19 pandemic began,

retirement insecurity has increased dramatically: 55%

of Americans had insufficient savings to retire

securely as of July 2020, a 5% jump in only three

months. Alicia H. Munnell, Anqi Chen, & Wenliang

Hou, How Widespread Unemployment Might Affect

Retirement Security 4 (July 2020), https://bit.ly/3kh

CqNo. Given the absence of pensions and the modest

amount available in Social Security benefits, saving

money through work—usually through defined

contribution plans—is the only way for most

Americans to have any hope of a secure retirement.

See Alicia H. Munnell, Wenliang Hou, and Geoffrey T.

Sanzenbacher, How Would More Saving Affect the

National Retirement Risk Index?, Center for

Retirement Research, Boston College 1 (Oct. 2019),

21

https://bit.ly/35FqyQw (“[I]ncreasing saving is a

realistic option only for those workers who have access

to a retirement plan at work.”).

Thus, it is more important than ever to ensure

that fiduciaries keep fees reasonable in defined

contribution plans’ investment options. Even a small

increase or decrease in the fees charged by plan

administrators can make a very significant difference

in the amount in employees’ retirement accounts

when they retire. For instance, as the U.S.

Department of Labor has explained:

Assume that you are an employee with 35

years until retirement and a current

401(k) account balance of $25,000. If

returns on investments in your account

over the next 35 years average 7 percent

and fees and expenses reduce your average

returns by 0.5 percent, your account

balance will grow to $227,000 at

retirement, even if there are no further

contributions to your account. If fees and

expenses are 1.5 percent, however, your

account balance will grow to only

$163,000. The 1 percent difference in fees

and expenses would reduce your account

balance at retirement by 28 percent.

Holly Yeager, Mutual Fund Fees Still Hard to

Challenge, AARP Bulletin (Apr. 2010), https://bit.ly/

3l0Yiy2 (emphasis added).

22

Consequently, holding plans accountable for

failing to prune investment options with excessive fees

is crucial to ERISA’s effectiveness in the modern

retirement landscape.

C.

ERISA relies on plan participant

enforcement, and, thus, claims such

as Petitioners’ are vital to the

successful enforcement of ERISA.

Congress gave civil enforcement rights not only

to the Secretary of Labor but also to plan participants,

beneficiaries, and plan fiduciaries. ERISA § 502(a); 29

U.S.C. § 1132(a). And those enforcement rights extend

specifically to breach of the fiduciary obligations

related to the financial integrity of benefit plans.

Thus, Congress chose to rely upon all four parties to

enforce ERISA. Varity Corp., 516 U.S. at 512; see also

S. Rep. No. 93-127, at 35 (1973), reprinted in 1

LEGISLATIVE HISTORY OF THE EMPLOYEE RETIREMENT

INCOME SECURITY ACT 621 (1976) (describing Senate

version of enforcement provisions as intended to

“provide both the Secretary and participants and

beneficiaries with broad remedies for redressing or

preventing violations of [ERISA]”); H.R. Rep. No. 93533, at 17 (1974), reprinted in 2 LEGISLATIVE HISTORY

OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT

2364 (describing House version in identical terms).

Congress’s creation of these enforcement rights

reflected its intent to enable plan participants, as

private litigants, to bring cases against fiduciaries

who have breached their duties essentially to the same

extent that the Department of Labor might bring such

23

actions. See H.R. Rep. No. 93-1280 (1974) (Conf. Rep.),

reprinted in 1974 U.S.C.C.A.N. 5037, 5107. That

enforcement regime—if allowed to work as intended—

is both fair and effective, as no one will police a plan

more diligently than the participants who have a vital

stake in the proper management of their often modest

retirement funds.

Barring claims like Petitioners’ would curtail

private litigants, who lack the government’s

investigatory tools and cannot plead proprietary facts

in a complaint, from bringing meritorious cases. Not

only is that result legally incorrect, but also,it is

problematic from a practical enforcement standpoint.

The Department of Labor has consistently had

inadequate resources to police the retirement system.

See, e.g., U.S. Dep’t of Labor, PWBA Task Force On

Assistance To The Public (1992); U.S. Gov’t

Accountability Off., Pension And Welfare Benefits

Admin., GAO-02-232, Opportunities Exist For

Improving Management Of The Enforcement Program

2-3 (2002); U.S. Gov’t Accountability Office, Employee

Benefits Security Admin., GAO-07-22, Enforcement

Improvements Made but Additional Actions Could

Further Enhance Pension Plan Oversight 10, 28

(2007); see also Karen L. Handorf & Daniel R. Sutter,

Cohen Milstein, Watch These ERISA Cases in 2019

(Jan. 1, 2019), https://bit.ly/3DURlHl.

Thus, for ERISA to be enforced as Congress

intended, plan participants must have a navigable

path to file breach of fiduciary claims, given the

limited information to which they are privy. Braden,

388 F.3d at 597 n.8 (“The Secretary of Labor, who is

24

charged with enforcing ERISA . . . depends in part on

private litigation to ensure compliance with the

statute. To that end, the Secretary has expressed

concern over the erection of ‘unnecessarily high

pleading standards’ in ERISA cases.”). Preventing

plan participants from enforcing their rights under

ERISA due to a failure to plead facts unattainable to

them, and solely in the possession of plan fiduciaries,

undermines Congress’s intent when it passed ERISA.

It will also hinder the overall enforcement of ERISA,

thereby further increasing the risk that individual

workers face when entrusting plan administrators

with their savings.

CONCLUSION

For these reasons, the Court should reverse the

Seventh Circuit’s decision.

Respectfully Submitted,

DARA S. SMITH*

*Counsel of Record

WILLIAM ALVARADO RIVERA

DEAN GRAYBILL

AARP FOUNDATION

601 E Street, NW

Washington, DC 20049

(202) 434-6280

dsmith@aarp.org

STEPHEN HALL

BETTER MARKETS INC

1825 K Street, NW

Suite 1080

Washington, DC 20006

(202) 618-6464

shall@bettermarkets.com

25

DYLAN BRUCE

CONSUMER FEDERATION

OF AMERICA

1620 I Street, NW

Suite 200

Washington, DC 20006

(202) 387-6121

dbruce@consumerfed.org

KAREN W. FERGUSON

NORMAN P. STEIN

PENSION RIGHTS CENTER

1050 30th Street, NW

Washington, DC 20007

(202) 296-3776

kferguson@pensionrights.org

nps32@drexel.edu

CATHERINE RUCKELSHAUS

NATIONAL EMPLOYMENT

LAW PROJECT

90 Broad Street, Suite 1100

New York, NY 10004

(646) 693-8221

cruckelshaus@nelp.org

Counsel for Amici Curiae