By Daniel Aronowitz
Like a bad movie sequel, the Northwestern excessive fee case is back for another round. The Seventh Circuit Court of Appeals will hear oral arguments on the remanded case from the Supreme Court on the morning of Tuesday, November 29. It is the long-awaited opportunity to learn how the Seventh Circuit will respond to the Hughes v. Northwestern January decision by the Supreme Court. The argument is more compelling now that the Seventh Circuit has issued the Oshkosh decision in which it rejected similar claims of excessive recordkeeping and investment fees in a plan with actively managed fees that were above the industry average. The Oshkosh court interpreted the Hughes v. Northwestern decision to require a higher plausibility pleading standard, but the Oshkosh case did not address the key issue presented in the Northwestern case of whether the use of retail share class funds satisfies the plausibility pleading standard. That is why Oshkosh is not a full predictor as to the likely outcome in the remanded appeal.
There are three core and two ancillary issues in the appeal. The three core excessive fee issues are: (1) what is the plausibility standard for an ERISA excessive fee case after the Supreme Court’s Hughes v. Northwestern decision; (2) have the plaintiffs met the plausibility standard for the claims of excessive recordkeeping fees in a case involving asset-based recordkeeping and uncapped revenue sharing; and (3) have the plaintiffs met the plausibility standard for claims of excessive investment fees based on the alleged improper use of retail-share class funds and too many investment options that include duplicative investments in similar investment categories. The case also presents two additional issues that may prove dispositive: (4) can the court consider evidence from discovery that plaintiffs claim support their claims [namely that Northwestern was allegedly advised by a plan consultant in 2011 and 2012 that maintaining multiple recordkeepers and duplicative funds led to unnecessary fees]; and (5) can plaintiffs amend their complaint if the court rules for Northwestern or holds that the retail-share class claim was not alleged in the operative complaint as Northwestern asserts. We analyze all five issues below prior to Tuesday’s oral argument.
What is the Plausibility Standard for an ERISA Excessive Fee Case?
The threshold issue raised by both parties is what is the pleading standard for an excessive fee case under ERISA. After the parties had finalized their appellate briefs, the Seventh Circuit issued the Oshkosh decision in which the court held that the Supreme Court’s Hughes v. Northwestern was a limited decision that did not change the prior pleading standard applied in the circuit for ERISA excessive fee cases. Before the Hughes case, the Seventh Circuit was the most plan sponsor friendly court in dismissing excessive fee cases. The Oshkosh decision will thus take center stage in the oral argument.
Plaintiff argues that “Northwestern seeks to displace the ‘short and plain statement’ required by Rule 8 with a heightened pleading standard.” But the bare minimum notice pleading standard under Federal Rule of Civil Procedure 8 has already been rejected by the Seventh Circuit in Oshkosh. The Supreme Court in Hughes adopted the plausibility standard for excessive fee cases, and plausibility is not notice pleading. There is little doubt, therefore, that the Seventh Circuit will apply the heightened plausibility standard, which requires context-specific evidence and not just the notice pleading.
Northwestern nevertheless is pushing for an even higher plausibility standard from the Dudenhoeffer case that involved investment losses in the plan from stock of the plan sponsor. According to Northwestern, the Iqbal and Twombly standard applied in the specific context of the plans requires a complaint to plausibly allege two things: (1) first, that the alternative action that plaintiffs claim the plan should have taken was actually available to the fiduciary; and (2) second, that a prudent fiduciary in defendants’ position could not have concluded that the alternative action urged by plaintiffs would do more harm than good, such that it was outside the range of reasonable judgments [citing to Dudenhoeffer]. Under Northwestern’s second prong of the proposed two-part pleading standard, plaintiffs’ allegations must rule out reasonable explanations for the challenged decisions. As the Supreme Court instructs, review of the allegations must account for the “range of reasonable judgments” and “difficult tradeoffs” the plans’ fiduciaries confronted in making each challenged decision. According to Northwestern, this instruction emphasizes that “a context-specific analysis is required before unlocking the doors to costly and burdensome discovery.”
Northwestern argues that plaintiff are seeking a “toothless,” “watered-down,” “straight-to-discovery” pleading standard that allows mere conclusory allegations of excessive fees or mismanagement to defeat a motion to dismiss. According to Northwestern, plaintiffs do not allege that their preferred alternative action was actually available, or that the action taken was objectively unreasonable. As discussed below, the primary argument by Northwestern is that it was not possible to consolidate to one recordkeeper in order to keep the TIAA annuity that represented one-third of plan assets. In addition, the Supreme Court, according to Northwestern, has never held that a fiduciary has a duty to replace retail class shares with institutional class shares at the earliest possible time. Rather, Tibble holds that the duty of prudence requires a fiduciary to monitor investments on an ongoing basis and remove those that become imprudent.
Northwestern gives persuasive reasons for a heightened pleading standard, namely that “ERISA fiduciaries are frequent litigation targets.” “The watered-down pleading standard plaintiffs advocate will hamper employers’ ability to cost-effectively administer ERISA plans, and ultimately harm participants by driving up expenses.” The Supreme Court recognized in Twombly that the pleading standard must guard against speculative lawsuits that “push cost-conscious defendants to settle even anemic cases.” In ERISA actions, Northwestern argues that discovery is asymmetrical and costly, and the settlement pressure and incentives for meritless suits is high – meaning the “doors of discovery” should not be unlocked until a plaintiff has articulated a “plausible claim for relief.” (citing Iqbal). “Worse, in the context of university excessive-fee litigation, fiduciary insurance cannot provide a meaningful safety net for university 403(b) plan fiduciaries – most of whom are volunteer faculty and staff – as it does in other contexts.”
We can validate Northwestern’s public policy concerns with respect to fiduciary insurance. Based on Euclid’s underwriting experience, the two most difficult account types to insure are large university plans and ESOPs. Both classes have trouble securing fiduciary insurance because of capricious class action litigation. Just this month, we saw a large university who had been sued for purported excessive fees that had a $15 million excessive fee retention. That means that any claim for breach of fiduciary duty related to plan expenses would potentially be a personal liability of individual plan fiduciaries that cannot be paid out of plan assets.
Do the Claims of Excessive Recordkeeping Fees Meet the Plausibility Pleading Standard?
Plaintiffs argue that they stated a plausible claim that Northwestern breached its fiduciary duties by causing the plans and their participants to incur unreasonable and excessive recordkeeping fees. As alleged in the amended complaint, the plans paid approximately $4-5 million in recordkeeping fees per year – over $150 per participant – when a reasonable recordkeeping fee would have been approximately $1.05 million (an average of $35 per participant). Plaintiffs argue that the cost of recordkeeping depends on the number of participants, not asset levels. Yet, the plans recordkeepers were compensated through open-ended, uncapped revenue-sharing payments from their proprietary mutual funds in the plans. Plaintiffs allege that Northwestern could have taken three basic steps to reduce fees: (1) consolidate to one recordkeeper; (2) solicit competitive bids from other recordkeepers; and (3) negotiate with existing recordkeepers for rebates or fee reductions.
To support their assertions of what a prudent fiduciary in like circumstances would have done, plaintiffs cited specific examples of steps taken by fiduciaries of other university plans to successfully reduce recordkeeping fees. Loyola Marymount, Pepperdine, and Purdue allegedly did so by soliciting competitive bidding and consolidating to a single recordkeeper. Like Northwestern, CalTech allegedly used TIAA and Fidelity as recordkeepers and offered over 100 funds, but CalTech consolidated to TIAA as sole recordkeeper and negotiated substantial rebates. [Euclid note: the complaint does not substantiate any of these allegations relating to other university plans with specific fee amounts. Plaintiffs do not compare the CalTech fees to the Northwestern fees – any savings by CalTech is conjecture.]
Northwestern counters that plaintiffs have failed to allege a plausible excessive fee claim related to recordkeeping because it was not possible to consolidate to one recordkeeper and maintain the same investment options. According to Northwestern, Plaintiffs contend that Northwestern could have secured lower recordkeeping fees by using a single recordkeeper and a per capita fee model. But plaintiffs have not plausibly alleged that these alternative arrangements were available to the plans. To the contrary, plaintiffs’ own allegations establish that no single recordkeeper could service the plans’ full menu of options, because a large share (one-third) of the plan’s assets was invested in the TIAA annuity. The annuity had specialized administrative requirements and a significant early withdrawal fee, and Northwestern was contractually obligated to have TIAA record-keep the annuity. According to Northwestern, Plaintiffs also fail to identify any recordkeeper that has ever accepted the $35 per participant fee for equivalent services that plaintiffs arbitrarily allege was reasonable.
According to Northwestern, the specific context in which this case arises – Northwestern’s 403(b) plans and their historic offering of the TIAA Traditional Annuity – means that not only was continuing to utilize two recordkeepers within the “range of reasonable judgments,” but it was the only reasonable option. Plaintiffs cannot plausibly allege that any other recordkeeper is qualified to record-keep the traditional annuity. In addition, TIAA’s traditional annuity imposes a 2.5% withdrawal penalty – an “enormous” competing tradeoff. In sum, Northwestern argues that these allegations do not lead to an inference that the plans recordkeeping fees would have been lower overall had Northwestern eliminated Fidelity in favor of TIAA. According to Northwestern, plaintiffs are required to plead the identities of alternative recordkeepers, but the plan had a contractual requirement that Northwestern retain TIAA as recordkeeper in order to offer the popular traditional annuity.
With respect to plaintiffs other recordkeeping theories, Northwestern argued that other courts have held that ERISA does not require competitive bidding. In addition, plaintiffs fail to allege that Northwestern could or should have negotiated a recordkeeping fee of $35 per participant. Plaintiffs do not identify a single recordkeeper who has offered equivalent, lower-priced services to a 403(b) plan laden with historical annuity contracts, or allege a hypothetical lower-cost provider would be able to serve the best interest of the plan participants.
Northwestern also contends that plaintiffs ignored the significant tradeoffs presented by a per capita fee. According to Northwestern, a “pro rata fee is not per se superior.” “Northwestern’s use of an asset-based model is explained by its reasonable desire to distribute recordkeeping costs equitably among participants.”
Does the Claim of Excessive Investment Fees Based on Too Many Investment Options and Use of Retail-Share Classes Meet the Plausibility Pleading Standard?
Plaintiffs assert two different excessive investment claims: (1) too many, duplicative investments; and (2) failure to secure lower-share class fees for investments. Plaintiffs first argue that they plausibly alleged that Northwestern imprudently offered an excessive number of duplicative investment options, which increased expenses and confused participants. Specifically, until Northwestern reduced the investment options to 40 in October 2016 after the lawsuit was filed, the main plan had 242 options and the other plan had 187 options, including duplicative options in each investment style.
Second, and what Northwestern contends is an alternative and contradictory claim, plaintiffs assert that they plausibly alleged that Northwestern imprudently provided 129 retail-class mutual funds when it could have obtained the same investment at a lower price through institutional-class versions of the same funds. Plaintiffs cite to the Sixth Circuit’s July 13, 2022 decision in Forman v. TriHealth in which the court reversed a dismissal of a similar share-class claim. In TriHealth, allegations that fiduciaries provided retail-share classes of seventeen funds and failed to take advantage of “functionally identical” institutional-class shares of the same funds available “at lower costs,” permitted the reasonable inference that they imprudently failed to leverage the plan’s $457 million size to benefit participants. Using the “more expensive class of the same fund guarantees worse returns.” According to plaintiffs, the court rejected the same alternative explanations that Northwestern advances here: that certain funds did not hold enough assets to qualify for a less expensive share class or that revenue sharing arrangements justified higher-cost options. Plaintiffs further argue that TriHealth supports plaintiffs’ position that Northwestern failed to leverage the Plans’ $3 billion size – over six times larger than the TriHealth plan – to obtain identical lower-cost share of 129 options and thus permits a reasonable inference of imprudence.
As noted above, Northwestern takes the position that plaintiffs investment claims are contradictory. According to Northwestern, Plaintiffs allege that investment funds offered in the plans charged excessive fee because Northwestern allegedly offered too many investment options, depriving the plans of their ability to qualify for lower-cost share classes. In doing so, however, Northwestern argues that plaintiffs admit that the institutional share classes were not available to the plans unless defendants radically restructured the plans investment lineups. Because offering a broad variety of investments does not violate (and is in fact encouraged by) ERISA, these allegations also fail to state a claim. “Because it was reasonable under the circumstances for defendants to offer numerous options, ERISA did not require them to drastically alter the makeup of the Plans in order to offer modestly-cheaper shares of certain funds.”
Northwestern then attempts to preclude the retail share claim as not pled in the complaint. According to Northwestern, plaintiffs have shifted their argument: instead of arguing that lower-cost institutional-class funds were unavailable due to the number of investments in the plans, plaintiffs “reversed course” and alleged that institutional share were available to Northwestern because it had sufficient bargaining power to obtain them, but imprudently neglected to do so.
Plaintiffs respond in the reply brief that Northwestern’s insistence that the retail-share class claim is not part of the case and that plaintiffs “shifted to a new theory in the Supreme Court” is “not grounded in reality.” According to plaintiffs, the Supreme Court already rejected Northwestern’s contention by holding that the share-class claim “must be considered” on remand, in addition to the “too many” options claim. Moreover, “the claims are not inconsistent.” According to plaintiffs, a $3b plan has significant leverage: the Northwestern plans “easily could have obtained the lowest-cost share class of every investment option in the Plans.” According to plaintiffs, Northwestern plan fiduciaries could have asked for a waiver. That is not a concession that institutional-class shares were not available unless the plan was radically changed. Alternatively, plaintiffs assert that if Northwestern had taken the prudent step of streamlining the 200+ fund lineup as it eventually did in 2016, “the plan would have automatically qualified for lower-cost shares without Northwestern having to pick up the phone.” “As the plaintiffs’ expert in Tibble put it: ‘Billion-dollar clients get whatever they want. It’s just that simple.’”
“Also invalid is Northwestern’s suggestion that 403(b) plans are ‘fundamentally different’ because they invest heavily in annuities and only recently have been ‘permitted to offer some mutual funds.’” Mutual funds are the most common investment in large ERISA 403(b) plan, encompassing 60% of assets. In fact, two-thirds, or $2m+, of the Northwestern plan was in mutual funds.
Can the Court Consider Evidence From Discovery?
In its appellate brief to the Seventh Circuit, Plaintiffs included purported evidence from discovery that supported its case. Unlike most excessive fee cases, discovery proceeded for one year in the Northwestern case while the motion to dismiss was pending, and had nearly concluded when the district court dismissed the case. Plaintiffs attempted to amend their complaint another time after the case was dismissed, but that was denied. The revised pleading rejected by the court included deposition testimony from Northwestern’s outside consultant, Straightline Group, LLC. Plaintiffs contend that Straightline made numerous key admissions, including that Northwestern had failed to adequately monitor the plan costs and fees; Straightline had warned that the use of revenue sharing could produce excessive recordkeeping compensation; the TIAA $150 per participant recordkeeping fee “appears excessive”; there was no need to have two recordkeepers and recommended consolidating to a single recordkeeper; and Straightline “admitted that Northwestern should have transitioned the Plans from retail-class shares of mutual funds to institutional-class shares.”
Northwestern asserts that “unpled allegations cannot be considered in evaluating whether the First Amended Complaint states a claim.” According to Northwestern, “Plaintiffs effectively concede that the operative complaint is fatally flawed by focusing so much of their brief on facts not pled” in the complaint. Allowing plaintiffs “to salvage their complaint with these materials would end-run the district court’s denial of plaintiffs’ untimely request for leave to amend.” Moreover, “Plaintiffs distort the evidence beyond plausibility.” For example, with respect to the testimony from Straightline, plaintiffs conceded that Northwestern hired another consultant for a second opinion, but fail to disclose the advice of the second consultant. “The plausible inference therefore is not that defendants engaged in a defective decision-making process, but rather, that defendants satisfied their duties by carefully evaluating and then rejecting the first consultant’s alleged advice.”
Can Plaintiffs Amend Their Complaint To Address Any Deficiencies the Seventh Circuit Finds in the Complaint?
To the extent that the Seventh Circuit rules for Northwestern, plaintiffs argue that the court should remand the case for reconsideration of an amended pleading. Plaintiffs argue that an amended complaint is warranted to address the intervening change in the law: “Because Hughes has now clarified the legal standard for pleading a breach of fiduciary duty under ERISA, interests of justice favor an opportunity to meet that standard.” Plaintiff continue that, “in fairness,” they should be given the opportunity to supply any details the court deems missing through an amended pleading.
Northwestern argues that this court should ignore plaintiffs’ “untimely attempt to revive claims” in another amended complaint, including “their tardy bid to overhaul their attack on offering retail-class shares.” The request to amend was rejected by the district and appellate courts previously, and it “goes well beyond the scope of the Supreme Court’s remand.” Northwestern argues that plaintiffs have admitted that they strategically abandoned this issue in seeking review by the Supreme Court. Plaintiffs have therefore forfeited any challenge to this Court’s decision affirming the district’s court’s denial of leave to amend.
THE EUCLID PERSPECTIVE
If you read plaintiffs’ briefing in the case before the Seventh Circuit, you will see multiple citations to Euclid’s analysis of the Northwestern case and the problematic fact pattern that it presents. Euclid-Specialty-The-Pleading-Standard-for-Excessive-Fee-Lawsuits_August-2021.pdf (euclidspecialty.com) We stand by our analysis of the Northwestern case prior to the Supreme Court decision last year. But now that Supreme Court has confirmed that the plausibility standard – as opposed to the notice pleading standard – applies to ERISA cases, we want to update our analysis as to how the Seventh Circuit should consider the plausibility of the Northwestern complaint under the Supreme Court’s Hughes v. Northwestern ruling. We have always contended that plan sponsors have a Northwestern problem given that the Supreme Court was reviewing a case with uncapped revenue sharing, asset-based recordkeeping fees, and 129 retail share class investments. It remains a suboptimal fact pattern to set precedent on the proper pleading standard. Nearly every purported excessive fee case filed in the last three years has lower recordkeeping and investment fees than the Northwestern plan before it was overhauled in 2016.
Given the passage of time, whereas plan sponsors have a Northwestern problem, the Schlichter law firm has an Oshkosh problem. The Seventh Circuit is now on record after the Hughes v. Northwestern decision that it remains skeptical of most excessive fee lawsuits when applying context-specific scrutiny. The Schlichter law firm now faces an uphill battle to resurrect its Northwestern case, a burden that is increased because it is having to defend a complaint filed seven years ago, without the benefit of years of learning as to how to file more effective excessive fee lawsuits. The complaint is outdated, and the case law has improved for plan sponsors.
RECORDKEEPING CLAIMS:
We have no idea as to how the Seventh Circuit will rule a second time on the claims of excessive recordkeeping, but nothing changes the fact that $150 per participant is too high, particularly when the amount has no cap. $5m in recordkeeping fees for a $3b plan is high. It is also problematic that the recordkeeping fees used uncapped revenue sharing and was an asset-based agreement. The plan administration costs only grow higher under this arrangement as the plan grows larger. It is not best practice.
But despite the problematic recordkeeping fees, plaintiffs have some serious pleading problems. The main problem under Oshkosh and recent case law is that they have not alleged any meaningful comparisons by which to judge whether the recordkeeping fees are high. The $35 per participant allegation is made up, with no basis for comparison. The $5m total fees are not compared to any other plan. Even if $1m is the right number in the marketplace in 2016, the complaint had no analysis as to why $1m is the right number. There is also no comparison of the services provided to the Northwestern plans compared to any other plans. Plaintiffs allege that five universities consolidated to one recordkeeper, but there is no evidence as to how the fees compare to the Northwestern plan, or whether the recordkeeping services are comparable. They might be, but the complaint does not even attempt to address the issue or provide a meaningful benchmark. This is likely fatal to plaintiffs recordkeeping claims. Again, the Schlichter law firm is stuck with a seven-year old, outdated complaint. That is why they have the fallback argument to amend the complaint if they lose the remanded appeal. They do not even have the Capozzi or Walcheske standard chart of purported comparison plans, or comparisons to a national recordkeeping fee data base. There is absolutely nothing in the complaint to validate whether $5m is too high, or $1m is the proper market comparison. There is no context to judge whether the fees are excessive.
In sum, plaintiffs might be right that uncapped revenue sharing and per-participant recordkeeping is flawed, but they likely do not meet the plausibility standard under Hughes v. Northwestern and Oshkosh.
It is useful to compare the Northwestern plan to the plan in Oshkosh. The Oshkosh defined contribution plan in 2018 had 12,914 participants with over $1.1 billion in assets. It is approximately one-third the size of the Northwestern plan. In that case, plaintiffs alleged that $87 average per participant was imprudent by failing to regularly solicit competitive bids, compared to what the defense called was a “random assortment of nine other plans from around the country.” The Court recounted that in Divane v. Northwestern, “we rejected the notion that a failure to regularly solicit quotes or competitive bids from service providers breaches the duty of prudence.” The Court stated that the Supreme Court “did not hold that fiduciaries are required to regularly solicit bids from service providers.” This means that the Supreme Court did not overrule the Seventh Circuit’s precedent in Hecker v. Deere that plan sponsors are not required to search for a recordkeeper willing to take $35 per participant as the Northwestern and dozens of other complaints have asserted. The Court cited to the Sixth Circuit’s decision in Smith v. CommonSpirit Health in which the Sixth Circuit held that a claim of excessive recordkeeping fees is only plausible if comparing the fees relative to the services provided. The Seventh Circuit specifically stated that it agreed with the Sixth Circuit that the Hughes decision had no bearing on recordkeeping claims. The Court thus dismissed the recordkeeping claims because “[t]hat claim fails under our precedent that Hughes left untouched.” The Court did warn, however, that “[i]n so holding, we emphasize that recordkeeping claims in a future case could survive the ‘context-sensitive scrutiny of a complaint’s allegations’ courts perform on a motion to dismiss.”
Plaintiffs did not provide any of the meaningful comparisons required by the Oshkosh court to validate their recordkeeping claims, so the only way the claims could survive is if there is a legitimate difference from Oshkosh that the Northwestern plan had uncapped fees on a percentage of asset basis as opposed to a per-participant fee basis. It is also possible that the plan provided a meaningful benchmark by the fact that it rehauled the plan in 2016 after the initial complaint was filed, switching to a $42 fee on a per participant basis in 2016, which solved most of the issues. Subsequent remedial measures are supposed to be excluded from evidence, but there is nothing preventing this allegation in a complaint, and the citation of remedial efforts is used in many cases. In the final analysis, plaintiffs have likely failed to meet the Seventh Circuit’s plausibility test to allege excessive recordkeeping fees, even though the Northwestern recordkeeping fees are twice as high as the Oshkosh plan that was one-third the size. This is mostly because the complaint is seven-years old, and was drafted well before the case law evolved to require better fee comparators, including a comparison of recordkeeping services.
INVESTMENT CLAIMS:
While the Oshkosh case might prove fatal to plaintiffs’ recordkeeping claims, the Oshkosh court did not address the key claim in the Northwestern case of whether it is imprudent to have too many investment options or dozens of retail-share class investments. The operative complaint alleges 129 retail-share class investment options out of the 242 total investments. This is hard to defend, and is the type of evidence that the Sixth Circuit allowed in the Forman v. TriHealth case. Even the Department of Labor has filed an amicus brief taking the position that retail-share class investments in the Northwestern plan violate the duty of prudence.
Northwestern’s defense of the retail share class claims is the argument that these claims were not alleged in the complaint and have been forfeited on appeal. It is not a defense on the merits of the retail share-class claim. The complaint contains pages of comparison charts comparing the retail and wholesale fees, and the differences are material. Plaintiffs assert that this is sufficient, even if they did not have a heading relating to higher fee share classes. There is also no attempt to justify any retail-wholesale fee differences based on revenue sharing rebated to participants. Instead, Northwestern argues that it is reasonable to have 242 investment options, and that it had no obligation to reduce the fees by consolidating into fewer investment options. But that is exactly what Northwestern did in 2016 when it consolidated to 40 investment options. The argument that it is prudent to pay higher fees in more investments is curious. There is no precedent cited to justify this position – just that ERISA does not disallow it. Northwestern also appears to be arguing and relying on a technicality that plaintiffs somehow did not argue that the plan improperly used retail share classes.
PREDICTIONS:
It is foolhardy to predict any judicial outcome in an excessive fee case. We have written extensively as to how the current judicial landscape in ERISA class actions is a crapshoot. Plans with what we consider high fees and retail share classes, like CommonSpirit and Oshkosh, get dismissed, but plans with lower fees are sometimes allowed to proceed. Moreover, both of those cases appear to have involved higher fee retail share classes, but somehow those more viable claims were not asserted by plaintiffs in those cases. Sometimes it is better to be lucky than good, but that does not help set useful precedent. Nevertheless, we are willing to predict that the Seventh Circuit dismisses the recordkeeping fee claims, but allows the investment fee claims based on the use of higher-fee retail share class investments. We think at least part of the complaint will survive the plausibility test on remand.
We end with one final point. Given the numerous times that plaintiffs cite to Euclid perspectives to attempt to justify their position, we want to end by clarifying our overall themes regarding excessive fee cases. We continue to believe that 90+ percent of all excessive fee lawsuits lack merit and should be dismissed under the plausibility standard. Most of the cases are improper, hindsight challenges to legitimate fiduciary decisions that deserve discretion under fiduciary law. Fiduciaries are entitled to wide discretion of fiduciary decisions in order to provide quality benefits to participants without fear of litigation liability. The Department of Labor has unfairly allowed meritless litigation to proceed without providing a coherent liability standard for fiduciaries to follow. This has created an unfair liability trap for plan sponsors.
But we have never asserted that every excessive fee case is illegitimate. A few cases – but less than ten percent of all cases filed – are legitimate. The Northwestern case with $150+ asset-based recordkeeping, uncapped revenue sharing with no rebates to participants, and 129 retail share class claims might be a legitimate case. Importantly, while we objectively see some of the plan structure issues, we do not agree with plaintiffs on the liability model – as most of the purported excessive fees were caused by TIAA and should be reimbursed to the plan in an offset for future services. On the merits, we think Northwestern should have primarily argued that it did overhaul the plan, that it took several years to overhaul the plan, and the current plan is a model of best practices. But instead, they have primarily tried to defend the fees alleged in the complaint. We have always believed that defense lawyers have harmed the plan sponsor industry by filing motions to dismiss in cases with problematic facts like the Northwestern case. And we also believe that motions to dismiss should not be filed every case. That avoids case law developing in cases with high fees. In final analysis, that continues to be the reason why plan sponsors have a Northwestern problem.
We will be watching the argument on November 29.
