An ERISA fiduciary must act “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.” 29 U.S.C. § 1104(a)(1)(B). ERISA’s duty of prudence includes a continuing duty to monitor investments and remove imprudent ones. Tibble v. Edison Int’l, 575 U.S. 523, 530, 135 S. Ct. 1823, 1828–29, 191 L. Ed. 2d 795 (2015). The Supreme Court has now held, in a unanimous decision written by Justice Sotomayor, that plan administrators cannot avoid this duty by relying on plan participants’ ability to choose among many options. Hughes v. Nw. Univ., 142 S. Ct. 737 (2022).
The plaintiffs in Hughes were beneficiaries of defined contribution retirement plans from Northwestern University. University employees who contributed to the plans were allowed to choose how the money in their accounts was invested from among the many investment options assembled by the plan fiduciaries. The plaintiffs alleged, among other things, that the plan offered certain mutual funds and annuities that carried high fees and had such an extensive list of investment options that it caused participant confusion and poor investment decisions.
The fiduciaries moved to dismiss the complaint; the District Court for the Northern District of Illinois granted the motion, and the Seventh Circuit affirmed. The Seventh Circuit held that, because participants had the ability to choose from hundreds of investment options and were not required to select any of the “bad” options identified by the plaintiffs, there was no breach of fiduciary duty.
The Supreme Court, however, concluded that it was error to rely on “the participants’ ultimate choice over their investments to excuse allegedly imprudent decisions by [the plan administrators].” 142 S.Ct. at 742. Because the fiduciaries were required to conduct their own independent evaluation to determine which investments were properly included among the options that participants could choose from, the fiduciaries could not simply point to participant choice. In other words, the availability of “good” investments under an ERISA plan does not excuse plan administrators from including “bad” ones. The fiduciary duty to continually monitor investments and remove imprudent ones from the menu remains, regardless of what choices are available to the plan participants.