Docket 23-1007
Cunningham v. Cornell Univ.
DecidedApr 17, 2025
9-0decision
Source: CourtListener.
Retirement plan employees don't need to disprove fee exemptions to sue over prohibited transactions
Impact5/10
What it does
The Court holds that plaintiffs need only plausibly allege the three elements of a prohibited transaction under § 1106(a)(1)(C): that a fiduciary caused the plan to engage in a transaction, that the fiduciary knew or should have known it involved furnishing goods or services, and that it was with a party in interest. The exemptions listed in § 1108, including the exemption for reasonable and necessary services, are affirmative defenses that defendants must plead and prove, not additional elements plaintiffs must disprove at the pleading stage.
Who benefits
Current and former employees who participate in employer-sponsored retirement plans and want to challenge fees paid to recordkeepers or other service providers as excessive.
Who is affected
Retirement plan administrators, sponsors, and fiduciaries (such as universities and corporations), who now bear the burden of proving that a challenged transaction fits within one of ERISA's 21 statutory exemptions or hundreds of regulatory exemptions once sued.
Practical impact
Employees suing retirement plan fiduciaries over allegedly excessive fees can survive a motion to dismiss by simply alleging that a plan paid a party in interest for services, without having to preemptively show the fees were unreasonable or unnecessary. Plan fiduciaries and sponsors will need to raise and prove exemptions as affirmative defenses, likely increasing the number of such suits that reach discovery, while district courts are expected to rely more heavily on tools like Rule 7 replies, standing requirements, and fee-shifting to filter out weak claims early.
Majority reasoning
The Court reasoned that § 1106(a)(1)(C) sets out a categorical, three-element prohibition and that Congress placed the exemptions in a separate section, § 1108, headed "Exemptions from prohibited transactions," which is the classic structure of an affirmative defense under the Court's precedent in Meacham v. Knolls Atomic Power Laboratory. Because the exemptions are laid out apart from the prohibition and expressly reference the prohibited conduct, the burden of pleading and proving them falls on the defendant seeking their benefit, not the plaintiff. The Court rejected treating some but not all of the 21 statutory exemptions (plus hundreds of regulatory ones) as pleading elements, since that would have no principled stopping point and would undermine Congress's intent to create a categorical bar. It also rejected reliance on the century-old criminal pleading case United States v. Cook, since that rule rested on constitutional fair-notice concerns unique to criminal indictments and does not apply in civil ERISA suits. Finally, the Court noted that district courts have other tools—Rule 7 replies, Article III standing requirements, discovery limits, Rule 11 sanctions, and fee-shifting under § 1132(g)(1)—to screen out meritless suits without changing the pleading burden.
Constitutional question
Under ERISA, must a plaintiff suing over a prohibited transaction between a retirement plan and a service provider also plead facts showing that a statutory exemption for reasonable, necessary services does not apply?
Precedent changed
The Court did not overrule any precedent but extended the affirmative-defense framework from Meacham v. Knolls Atomic Power Laboratory (interpreting the ADEA) to ERISA's § 1106/§ 1108 structure, and resolved a circuit split by rejecting the Second Circuit's approach in favor of the Eighth Circuit's approach in Braden v. Wal-Mart Stores.