On April 17th, 2025, the United States Supreme Court issued a unanimous opinion in Cunningham v. Cornell University<\/u> establishing a plaintiff-friendly pleading standard applicable to prohibited transaction claims under the Employee Retirement Income Security Act (\u201cERISA\u201d). The Court\u2019s holding makes it significantly easier for plaintiffs to defeat early-stage motions to dismiss, engage in costly discovery, and extract a settlement as to an alleged prohibited transaction claim.<\/p>\n
Background<\/strong><\/p>\n ERISA bars certain prohibited transactions between a plan and a related party, i.e. a \u201cparty-in-interest,\u201d to prevent conflicts of interest. However, there are several exemptions that allow plans to interact or conduct business with a party-in-interest if specific requirements are met. In Cunningham<\/u>, the plaintiffs accused Cornell\u2019s retirement plans of engaging in prohibited transactions by paying excessive fees for recordkeeping and other administrative services. The University responded that these transactions were exempt under ERISA\u00a0 Section 408(b)(2), which allows certain transactions with parties-in-interest if the following three (3) requirements are met: 1) the service is necessary for the establishment and operation of the plan, 2) such service is furnished under a reasonable contract or arrangement, and 3) compensation paid for the service is reasonable. The district court dismissed the participants\u2019 transaction claims, and the Second Circuit affirmed the dismissal, ruling that the plaintiffs must plead and prove the absence of such exemptions in order to state a claim under ERISA Section 406(a)(1)(C).<\/p>\n