A pair of different amicus briefs essentially calling for the same thing were filed in recent days, requesting that the U.S. Supreme Court to uphold a previous decision issued by the United States Court of Appeals for the Second Circuit in the case of Cunningham v. Cornell University.
“If every transaction can be the subject of a suit, then plans will be mired in litigation, which harms participants.”
Tom Christina, ERIC Legal Center
The amicus briefs—one from the ERISA Industry Committee (ERIC) and a coalition of employee benefit industry groups including the American Benefits Council and the SPARK Institute; and the other filed by Encore Fiduciary under the leadership of its President Daniel Aronowitz—call for stronger pleading standards to stem the growing tide of abusive ERISA class action litigation.
The case, originally filed back in 2016 by Schlichter Bogard on behalf of 28,000 Cornell University employees, highlights the importance of fiduciary duties in managing retirement plans and has influenced other universities and employers to scrutinize their 403(b) and 401(k) plans to mitigate litigation risks.
The case was filed as part of a wave of lawsuits targeting university 403(b) retirement plans. Plaintiffs, representing plan participants, alleged that Cornell University and its fiduciaries violated ERISA by offering high-cost, underperforming investment options and failing to monitor recordkeeping fees effectively.
In 2019, the Cunningham district court granted Cornell’s motion to dismiss the prohibited transaction claims targeting the plan’s recordkeeping fees, and the Second Circuit Court of Appeals affirmed this dismissal in November 2023.
In its amicus brief, ERIC and its coalition partners asked the Supreme Court to affirm the ruling, explaining that the actions under review in the case support the dual purposes of the Employee Retirement Income Security Act (ERISA) to both protect plan participants and support the creation and orderly administration of employee benefit plans.
In Cunningham, the Supreme Court is expected to address the pleading standard necessary to advance a complaint that a benefit plan transaction was a “prohibited transaction” under ERISA. Consistent with similar decisions in other circuit courts, the Second Circuit determined that alleging that an act was a “prohibited transaction” is not sufficient to advance a complaint, and that the plaintiff must also allege that statutory exemptions to those rules do not apply.
“Most ERISA benefit plans obtain services like recordkeeping that are executed by professionals who help keep the trains of plan administration on track. But in a world where merely hiring these experts opens the door to litigation, plan sponsors would become targets of meritless lawsuits,” said Tom Christina, Executive Director of the ERIC Legal Center. “If every transaction can be the subject of a suit, then plans will be mired in litigation, which harms participants. And if plans are less likely to engage the expertise of service providers, that could also harm participants. Nobody profits from this type of system—except the lawyers, of course.”
Christina added that the Second Circuit’s interpretation of ERISA’s rules acknowledges what any plan sponsor already knows: you cannot effectively administer a plan for your workforce without obtaining any services for it. “Importantly, it reads ERISA’s prohibited transaction provisions in a manner that is faithful not only to the statutory text, but also to Congress’s core aims in enacting ERISA,” Christina said. “Affirming the ruling of the Second Circuit is critical to preserving the foundation of ERISA.”
In addition to ERIC, allied groups filing the amicus brief, prepared by O’Melveny & Myers LLP, include the American Benefits Council and the SPARK Institute.
The Encore Fiduciary amicus brief also urged the Court to affirm the Second Circuit’s judgment in Cunningham v. Cornell University.
“The claims in the Cunningham case are part of a pattern of turning voluntary employee benefit plans into unfair liability traps,” said Aronowitz. “Our goal was to document the ERISA litigation abuse for the Supreme Court and to advocate for fair fiduciary pleading standards that protect fiduciaries who diligently follow best practices.”
Amicus briefs in the case were also submitted by AT&T Services, Inc., et al.; the Chamber of Commerce of the United States and National Association of Manufacturers; and the American Council on Education, et al. All concluded that the judgment of the court of appeals should be affirmed.
The Supreme Court is set to hear an appeal in Cunningham v. Cornell University on Jan. 22. The Court’s decision should provide some much-needed clarity on the pleading standard for ERISA prohibited transaction claims.
In a Nov. 2024 blog post about the case from law firm Morgan Lewis, authors Julie K. Stapel and Matthew A. Russell said the Jan. 22 appeal may also provide an opportunity for the Court to weigh in more generally on the appropriate pleading standard for ERISA challenges to recordkeeping fees.
“Though as it did in Hughes, the Court is likely to confine itself to deciding a narrower question, in this case the pleading standard for prohibited transaction claims,” the blog post said. “At the least, the Court’s opinion may include some helpful language for plan fiduciaries to cite in future cases alleging breaches of fiduciary duty related to recordkeeping or other fees.”
SEE ALSO:
• The Dramatic Rise in Excessive 401(k) Fee Litigation—And Who’s Fighting It
• 401(k) Advisors: Be True to Your School
• Wanted: Consistent Standards in Fiduciary Breach Legal Proceedings
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
