SEC Whistleblower Lawyer Blog
In the past few years, industry-watchers have seen a rise in lawsuits filed against pension funds: Clients have been suing pension fund providers for charging excessive fees—even higher fees than they charge other clients for similar investment products—and other wrongdoing. And now, following a unanimous decision issued by the Supreme Court in January 2022, even more clients may begin bringing lawsuits against providers—since the Court’s ruling clarifies pension fund providers’ duties to their customers.
Hughes v. Northwestern University
In Hughes v. Northwestern University, the plaintiffs alleged that defendant Northwestern failed to meet the fiduciary duties required under the Employee Retirement Income Security Act of 1974 (ERISA) because it offered excessively expensive investment options and charged extreme recordkeeping fees. The Court of Appeals had held that, because the clients could ultimately pick a plan from a range of plans offered, Northwestern had fulfilled its responsibilities to them.
However, the Supreme Court disagreed. Instead, the Court held that Northwestern’s fiduciary duties required that it regularly analyze the value of the plans it offered. If the provider found plans that were less beneficial to their clients, the answer was not just to include more plans, but also to stop offering the less valuable plans. Accordingly, the fact that customers could exercise judgment in their plan selection did not alleviate Northwestern of its responsibility to make its own judgment calls.
Thus the Court allows fiduciaries to make judgment calls about the plans they offer—but they really do need to exercise judgment when doing so. Ultimately, pension funds owe a fiduciary duty to the investor to properly manage and eliminate bad options.
The Court further held the outcome of future related lawsuits would depend on the facts at hand specific to each pension fund. Logic dictates that pension funds hold large amounts of money for many small investors relying on their funds for retirement and many high quality inexpensive options exist.
Red Flags Of Pension Fund Fraud
For now, consider questions such as these when considering whistleblowing against your pension fund or filing a claim:
- Of the plans offered, are some consistently underperforming?
- Are the administration costs the same or higher than those for individual plans?
- Are recordkeeping costs excessive (e.g., much higher than the market rates)?
- What is the expertise and experience of the fiduciary making these decisions?
Practically speaking, this new fact-specific standard will probably increase the number of pension fund-related claims, and it will make plan providers more likely to seek better options for plan participants—since providers won’t want to risk the time and expense of litigating every case before a trier of fact.
If you are concerned that your pension fund is overcharging clients, and if you should become a whistleblower, the attorneys Silver Law Group and the Law Firm of David R. Chase have years of experience in these matters, and they are here to help. For a free, confidential consultation, email us or call us today at (800)975-4345.