The Supreme Court, on April 17, 2025, handed down a decision in Cunningham, et al. v. Cornell, et al., defining the standard that a plaintiff needs to show in order to avoid the matter being dismissed before evidence is heard.
ERISA section 406 provides that it is a prohibited transaction for an ERISA plan to engage with a party in interest. Parties in interest include all entities and individuals that provide services to the plan. While this case was brought by workers of Cornell University specifically against the university’s 403(b) plan, the rules apply across all retirement and welfare benefit plans subject to ERISA. ERISA litigation has experienced an uptick in recent years, with retirement plans receiving the brunt of much of this litigation. More recently, however, welfare plans, and in particular health plans, are being challenged by plan participants.
You might be thinking, and if you are, you are correctly thinking, that engaging with a party in interest is necessary for proper plan administration. To this end, ERISA, in section 408, provides many exemptions to the general prohibited transaction standard. What the Supreme Court has said is that it is the defendant’s responsibility to prove that a prohibited transaction did not occur because one or more of the exemptions apply.
The case is returned to the lower court for further proceedings. In the meantime, plan sponsors are reminded that they should fully understand the fees and expenses that are paid by the plan. In addition, they will want to make sure that they have good documentation showing diligence in ensuring that an informed decision was made. This kind of documentation will prove to be useful should a plan fiduciary be challenged. Remember, it is the prudence of the process that is important.
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