In Hughes v. Northwestern University, decided January 24, 2022, the U.S. Supreme Court unanimously held that a retirement plan fiduciary cannot escape liability for imprudent investment options simply by pointing to other, cheaper options on the same menu. The 8-0 decision, written by Justice Sotomayor, vacated a Seventh Circuit ruling that had shielded plan sponsors under a categorical “participant choice” defense and sent the case back for a claim-by-claim review under ERISA’s context-specific prudence standard.1U.S. Supreme Court. Hughes v. Northwestern University, 595 U.S. 170
What the Case Was About
Northwestern University ran two 403(b) defined-contribution plans holding upwards of $3 billion in net assets for its employees. The plans used two recordkeepers, TIAA and Fidelity Management Trust Company, and for much of the relevant period offered 429 investment options.2Cornell Law Institute. Hughes v. Northwestern University
In 2016, current and former employees Laura Divane, April Hughes, Katherine Lancaster, and Jasmine Walker filed a class action alleging that Northwestern and its retirement plan fiduciaries breached their duties of loyalty and prudence under the Employee Retirement Income Security Act.3FindLaw. Hughes v. Northwestern University The case was originally captioned Divane v. Northwestern University.4Congressional Research Service. Hughes v. Northwestern University Legal Sidebar
Their claims fell into three groups. First, they alleged Northwestern paid between $4 million and $5 million annually for recordkeeping — several times what they said would be a reasonable rate of roughly $1 million — and had failed to consolidate to a single recordkeeper, solicit competitive bids, or leverage the plans’ size to negotiate rebates. Second, they alleged the plans offered retail-class mutual funds when identical institutional-class shares with lower expense ratios were available to large plans. Third, they alleged the sheer size of the fund menu confused participants and generated unnecessary administrative costs.2Cornell Law Institute. Hughes v. Northwestern University
Why the Lower Courts Dismissed the Case
The Northern District of Illinois dismissed the claims in 2018, and the Seventh Circuit affirmed in March 2020.4Congressional Research Service. Hughes v. Northwestern University Legal Sidebar The appellate court’s reasoning turned almost entirely on participant choice. Because the plans included some low-cost index funds alongside the higher-cost options the plaintiffs challenged, the court held there was “no need to further examine the latter options under ERISA.” Relying on its earlier decisions in Hecker v. Deere & Co. and Loomis v. Exelon Corp., the Seventh Circuit concluded that offering a wide range of investment options with varying fees did not breach a fiduciary’s duty, since participants could pick the cheaper funds themselves. The court also ruled that revenue-sharing arrangements and using two recordkeepers were not inherently imprudent.5FindLaw. Divane v. Northwestern University
The Supreme Court’s Holding
The Supreme Court rejected that categorical approach. It held that “respondents’ provision of an adequate array of investment choices, including the lower cost investments plaintiffs wanted, does not excuse their allegedly imprudent decisions.” The Seventh Circuit’s reasoning was “flawed” and “inconsistent with the context-specific inquiry that ERISA requires.”1U.S. Supreme Court. Hughes v. Northwestern University, 595 U.S. 170
Building on its 2015 decision in Tibble v. Edison International, the Court emphasized that ERISA fiduciaries carry a “continuing duty of some kind to monitor investments and remove imprudent ones.” Even where employees choose their own investments from a menu, fiduciaries must independently evaluate every option, and an imprudent investment left in place beyond a reasonable time is a breach.6Cornell Law Institute. Hughes v. Northwestern University The Court directed the Seventh Circuit to reassess the allegations as a whole under the pleading standards set out in Ashcroft v. Iqbal and Bell Atlantic Corp. v. Twombly.7Justia. Hughes v. Northwestern University
Justice Barrett did not participate; no reason for her recusal was publicly stated.8SCOTUSblog. Hughes v. Northwestern University
The opinion was deliberately narrow. It set no specific fee thresholds, dictated no particular share classes, and reminded lower courts to give “due regard to the range of reasonable judgments a fiduciary may make based on her experience and expertise.”4Congressional Research Service. Hughes v. Northwestern University Legal Sidebar
What Happened on Remand
On March 23, 2023, a Seventh Circuit panel with Judge Brennan writing dropped its categorical rule and applied the context-specific analysis the Supreme Court had required.9U.S. Court of Appeals for the Seventh Circuit. Hughes v. Northwestern University, No. 18-2569
Two of the employees’ claims survived dismissal. On recordkeeping fees, the court found the allegations plausible, pointing to evidence that recordkeeping services for large plans are relatively interchangeable, that Northwestern used an uncapped revenue-sharing model, and that five comparable university plans had taken cost-cutting steps Northwestern had not. On share classes, the court joined five other circuits in holding that keeping more expensive retail shares when cheaper institutional shares of the same funds were available can support a plausible claim of fiduciary breach.10Mayer Brown. On Remand From the Supreme Court, the Seventh Circuit Clarifies How to Plead and Defeat ERISA Fiduciary Breach Claims
The claim that offering too many investment options was itself a breach did not survive, and the panel let the original dismissal of that theory stand. A prohibited-transactions count and the plaintiffs’ jury-trial demand also remained dismissed.9U.S. Court of Appeals for the Seventh Circuit. Hughes v. Northwestern University, No. 18-2569
The Seventh Circuit also clarified what plaintiffs must plead. Employees do not have to prove that a cheaper alternative was “actually available” to the fiduciary; they need only plead that a “prudent alternative action was plausibly available.” At the same time, fiduciaries who can show diligent monitoring of plan expenses and fund performance are “much more likely” to defeat such claims early.10Mayer Brown. On Remand From the Supreme Court, the Seventh Circuit Clarifies How to Plead and Defeat ERISA Fiduciary Breach Claims
What Hughes Changed for ERISA Fee Litigation
Hughes did not invent a new test or new fiduciary duties. What it did was remove a defense that had let plan sponsors, particularly in the Seventh Circuit, win early dismissal by pointing to the breadth of their menus, and it reminded every court that ERISA prudence claims must be reviewed one investment at a time.
Application in the appellate courts has been uneven. The Sixth Circuit, in Forman v. TriHealth, Inc. (2022), cited Hughes when it reversed dismissal of a share-class claim, noting that the Supreme Court had “rejected that bright-line rule” that a wide range of options precludes an imprudence claim.9U.S. Court of Appeals for the Seventh Circuit. Hughes v. Northwestern University, No. 18-2569 Other appellate courts have continued to affirm dismissals on the facts, including the Sixth Circuit in Smith v. CommonSpirit Health, the Eighth Circuit in Matousek v. MidAmerican Energy Co., and the Seventh Circuit itself in Albert v. Oshkosh Corp.11Groom Law Group. Sixth Circuit Addresses Key Issues in Excessive Fee Lawsuits District courts have split on whether pleading that recordkeeping services are interchangeable across large plans is enough on its own, with courts in Singh v. Deloitte LLP and Laabs v. Faith Technologies treating that theory as too conclusory.12Kutak Rock LLP. The Aftermath of Hughes v. Northwestern University
Excessive-fee filings have kept climbing. There were 66 new cases in 2024, a 35% increase over the year before, and 60 cases were pending at year-end, the highest number in four years. The 53 settlements in 2024 totaled $203.3 million, averaging $4.6 million each.13Encore Fiduciary. Summary of 2025 State of ERISA Excessive Fee Litigation Filings had been growing for years before Hughes, so the decision is not the sole driver, but it removed a procedural barrier defendants had used to end cases at the pleading stage.14PlanAdviser. 401(k) Excessive Fee Litigation Spiked at Near-Record Pace in 2024
What Hughes Did Not Do
Certain fiduciary practices remain permissible. Revenue-sharing arrangements and actively managed funds are not automatically imprudent, offering a large number of investment options is not by itself a breach, and fiduciaries are not required to hunt for the cheapest possible fund in every category.12Kutak Rock LLP. The Aftermath of Hughes v. Northwestern University The Congressional Research Service observed that Congress could define the scope of fee-evaluation duties or adjust the burden of proof for participants, though no such legislation has been enacted.4Congressional Research Service. Hughes v. Northwestern University Legal Sidebar
Where the Case Stands Now
After the 2023 remand revived the recordkeeping-fee and share-class claims, the case returned to the Northern District of Illinois for further proceedings, including discovery. As of 2023 reporting, no trial date or settlement had been announced, and the litigation remained pending at the trial court level.15NFP. 7th Circuit Rules on Remanded Hughes v. Northwestern Case The dispute has been in the courts for nearly a decade since the original 2016 filing.