The Cunningham ruling: What it can mean for plan sponsors

The U.S. Supreme Court’s recent unanimous decision in Cunningham v. Cornell University sent ripples through the retirement plan community. The ruling shifts the litigation landscape, lowering the bar for more ERISA claims to proceed toward trial. For plan sponsors and fiduciaries, this means more lawsuits are likely to survive early motions to dismiss and move into costly discovery—regardless of whether fiduciaries acted in good faith. That said, the basics of sound fiduciary governance remain the same. Plans that follow prudent processes, document decisions carefully, and keep participants’ best interest at the center, should be on solid ground, even as the legal landscape shifts.

The Supreme Court's decision in Cunningham v. Cornell University lowers the pleading standards for ERISA prohibited transaction claims. In this case, the plaintiffs claimed that Cornell's retirement plan violated ERISA by engaging in several prohibited transactions (retaining underperforming investments, charging excessive fees, and engaging in prohibited transactions with their service providers). Under ERISA, a prohibited transaction can be as simple as entering into a contractual agreement with a third-party service provider. However, ERISA also provides certain exemptions that allow plans to engage in prohibited transactions if they meet prescribed conditions and requirements.

Prior to the Cunningham ruling, plan participants in some jurisdictions had to do more to move their claims forward. They not only had to state that plan fiduciaries engaged in a prohibited transaction but also had to show that the plan didn’t qualify for an exemption and provide sufficient factual allegations supporting these claims. Now based on the Cunningham ruling it appears participants only need to point to actions that appear to be prohibited transactions, and do not have to address the possibility of an exemption. The burden shifts to fiduciaries to argue that those actions qualified for an available exemption.

This decision shifts litigation risk earlier in the legal process. Cases that might have been dismissed at the motion to dismiss stage have a better chance of surviving and proceeding to discovery, where litigation costs can escalate significantly. Plan sponsors may feel more compelled to settle cases even when they have a legitimate legal defense, to spare themselves the cost of extended discovery and protracted litigation proceedings.

In this environment, documentation and process are typically the best defenses to ERISA fiduciary claims. The Cunningham decision should prompt plan sponsors to review how fiduciary actions are being carried out and recorded. Consider these questions:

Are key fiduciary processes and decisions being documented with sufficient detail? Fiduciaries should be able to demonstrate a prudent, well-documented process for all decisions, not just the final outcome. This particularly relates to plan expenses, contribution offsets, and asset usage. Routine internal reviews and coordination with ERISA counsel can go a long way in mitigating risk.

Is there a robust, documented process for benchmarking services? Good practice includes regular evaluation with a clear paper trail showing how fiduciary duties have been fulfilled. This should include formal benchmarking against peer plans, fee comparisons, and service quality assessments with documented rationale for continuing or changing relationships.

Are service provider relationships being re-evaluated regularly? Plan sponsors should be able to demonstrate that these relationships continue to serve participants' best interests through scheduled reviews, performance evaluations, and ongoing monitoring. Documentation should show why existing relationships remain appropriate and beneficial to participants.

How well are fiduciary committee minutes and governance documentation being maintained? These records may now be even more critical in defending against claims, as they provide evidence of the deliberative process and adherence to fiduciary standards. Minutes should reflect substantive discussions, decision-making rationale, and evidence of prudent process.

The Cunningham decision arrives at a time when federal regulators are rethinking their approach. For the first time in recent memory, the DOL filed a “friend of the court” amicus brief in support of the plan sponsor, HP Inc., in another fiduciary breach case, this one challenging the company’s decision to use forfeited funds to offset its matching contribution costs rather than offset administrative costs borne by plan participants. And David Aronowitz, nominated to lead the DOL’s Employee Benefits Security Administration (EBSA), signaled a more balanced regulatory future in his recent Senate confirmation hearing:

“We will end the era of regulation by litigation by providing clear and effective rules for America’s employee benefit system,” Aronowitz said. “We will restore discretion to plan fiduciaries as Congress intended in the ERISA statute, so that fiduciaries, not the government or plaintiff lawyers, decide what is best for plan participants.”

He further committed to championing plan expansion and innovation but underscored that this will only be possible with regulatory clarity and reduced litigation abuse.

The Cunningham decision doesn't change what good fiduciary governance looks like; however, it highlights the importance of maintaining good processes in a shifting litigation environment. By maintaining robust processes, comprehensive documentation, and staying current with industry best practices, you can continue to serve your participants effectively while managing litigation risk

In this dynamic environment, it's more important than ever to work with providers who stay ahead of these changes. Fiduciary responsibilities are complex and ever-changing, and having partners who understand both current requirements and emerging trends can make the difference between reactive compliance and proactive risk management.