The case of Cunningham v. Cornell University, currently before the U.S. Supreme Court, revolves around the interpretation of the Employee Retirement Income Security Act (ERISA) and what plaintiffs must demonstrate to claim that a retirement plan fiduciary engaged in prohibited transactions. The plaintiffs, a group of current and former Cornell University employees, seek clarity on whether ERISA imposes additional requirements beyond its text.
The dispute arises from an alleged circuit split in the interpretation of ERISA’s requirements. The employees argue that while certain circuit courts have found that plaintiffs must plead and prove additional elements and facts not explicitly stated in ERISA, others have not made such findings.
Specifically, the 2nd Circuit, where the case originated, ruled that ERISA plaintiffs must demonstrate that an alleged prohibited transaction was unnecessary or involved unreasonable compensation. The Cornell employees failed to meet this requirement in alleging that the university engaged in prohibited transactions, according to the court.
The employees’ allegations against Cornell include including imprudent and expensive investment options in its retirement plans, allowing conflicted third-party service providers to dictate the plans’ investment lineup, and failing to monitor and control administrative fees.
Meanwhile, the U.S. Department of Labor is advancing a proposed rule that would modify the department’s five-part test used to determine when an individual’s investment advice within employer-sponsored retirement plans constitutes fiduciary advice under ERISA. This proposed rule is undergoing further regulatory review after being received by the White House Office of Management and Budget on March 8.
