Navigating Increased ERISA Litigation Risk Post-Cunningham: How to Protect Your Plan

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Under the Supreme Court’s recent decision in Cunningham v. Cornell University, No. 23-1007 (April 17, 2025), plaintiffs asserting that ERISA plan administrators engaged in prohibited transactions under ERISA Section 406 are not required to plead the inapplicability of statutory exemptions in Section 408. The court confirmed that such exemptions function as affirmative defenses, placing the burden on plan fiduciaries to assert and prove them. The Cunningham decision resolves a longstanding circuit split regarding the proper pleading standards in ERISA litigation and will have significant effects on the future of ERISA litigation.

The Cunningham dispute involved allegations that Cornell’s retirement plans paid excessive recordkeeping fees to third-party service providers. The district court dismissed the complaint and the Second Circuit affirmed, holding that plaintiffs must affirmatively plead the absence of such exemptions to state a claim under Section 408(a)(1)(C). The Supreme Court reversed, emphasizing that plaintiffs need only allege the elements of a prohibited transaction to state a claim. Any statutory exemptions, the Court held, are affirmative defenses that defendants must raise and prove—not elements that plaintiffs must affirmatively negate in their complaints.

By eliminating the need for plaintiffs to anticipate and address exemptions at the pleading stage, the decision lowers the pleading standard and narrows the utility of motions to dismiss in prohibited transaction cases. As a result, more of these claims are likely to proceed to discovery.

While the Court acknowledged concerns about an uptick in meritless litigation, it emphasized that district courts have a number of procedural tools at their disposal to handle meritless claims. These tools include ordering a reply to an answer under Rule 7(a), imposing cost-shifting under ERISA Section 502(g), implementing targeted discovery limitations, and granting early summary judgment. A separate concurrence by Justice Alito, joined by Justice Thomas and Justice Kavanaugh, encouraged district courts to employ these tools as appropriate.

In the post-Cunningham environment, proactive litigation strategy and clear, defensible service provider agreements will be essential to managing exposure and controlling costs. Plan fiduciaries should ensure that service agreements are well documented, that compensation is demonstrably reasonable, and that contracts reflect ERISA-compliant fiduciary delegations. In active litigation, plan fiduciaries should be prepared to assert exemptions as affirmative defenses and to coordinate with counsel to invoke the procedural safeguards identified by the court.

Please contact us to evaluate how this decision may affect your plan’s risk exposure or to discuss strategies for minimizing litigation risk.