The Supreme Court has made it clear that a prudent fiduciary process is required of all ERISA-governed retirement plans. The landmark case, Hughes v. Northwestern, addressed complicated issues surrounding how the fiduciary process is a requirement for retirement plans. The main takeaway for those that manage a retirement plan is that there are no shortcuts, and the fiduciary process is non-negotiable.
More specifically, the Supreme Court found that plan sponsors need to have in place a process to ensure that each and every investment available in a plan’s lineup is independently prudent.
A point made during oral arguments puts it into focus: it is no consolation that other food at the buffet is fine if one eats an item that causes food poisoning. In so ruling, the Supreme Court rejected the reasoning by the lower courts that having a large lineup of funds of many varieties could insulate a fiduciary from a claim of imprudence.
The Hughes decision comes at a time of greatly increased litigation around ERISA fiduciary issues related to investments, fees, and other fiduciary issues. Many in the retirement plan world were hoping for a decision that would have made it harder for plaintiffs’ lawyers to bring cases against plan sponsors.
Unfortunately, that did not happen; instead, the unanimous decision by the eight justices who decided the case could have resulted in even more cases being filed.1 It’s possible that some plaintiffs’ firms have been holding back the filing of cases pending the decision. Now that it’s been decided, the floodgates could open even wider.
Re confirm a process is in place that meets the procedural prudence requirements of ERISA to ensure you are making prudent substantive choices is in the best interest of your plan participants. This makes you less of a target, and even if sued, it’s the only thing that has been demonstrated to win these cases.
This can be a daunting undertaking if you do not have the knowledge or skill internally to address these issues. The good news is that you can outsource this task to a trusted advisor specializing in helping retirement plans.
Contact us for a conversation and to review your plan’s prudent fiduciary process.
1 Justice Amy Coney Barrett recused herself because she was a sitting Seventh Circuit judge which is the circuit court that the case was being appealed from.
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