Cunningham v. Cornell: The Impact on ERISA Plans

It is nice having an attorney on staff at OCIO Monitor. Thomas Donahoe is a New York attorney and offers the following observations regarding the Supreme Court's recent Cunningham v. Cornell decision. ~Brian Schroeder

The Supreme Court has exposed plan fiduciaries to heightened risk. Here's why:

Lowering the Bar - The Supreme Court just lowered the bar for plan participants to sue plan fiduciaries.  The court in a 9-0 decision clarified that it is the plan sponsor who has the burden to show affirmative defenses.1   This means participants can survive the typical “motion to dismiss” stage and get to discovery. (Cunningham, et. al. v. Cornell University)

Consequences for Plan Fiduciaries - “The ruling marks a significant shift in how ERISA cases will be handled across the country” according to a Cornell source.  “It will make it significantly easier for workers to sue employers for retirement plan violations under federal law.”

“Legal experts at Bloomberg Law predict that it will make it easier for employees to bring claims against plan administrators and could lead to more scrutiny of how retirement funds are managed, particularly at universities and other large institutions that contract with third-party service providers.”

Additional Concerns for Fiduciaries - Justice Alito stated in the concurrence that “all a plaintiff must do in order to file a complaint that will get by a motion to dismiss… is to allege that the administrator did something that, as a practical matter, it is bound to do.”  Alito said as well, “in modern civil litigation, getting by a motion to dismiss is often the whole ball game because of the cost of discovery.  Defendants facing those costs often calculate that it is efficient to settle a case even though they are convinced that they would win if litigation continued.” 

Proactive Fiduciary Protection - Plan fiduciaries who adhere to well thought out rules, document decisions on a timely basis, and use independent investment experts can help protect themselves in light of future litigation risk.  These provide an essential shield.   

That’s where OCIO Monitor can be indispensable.  We analyze your portfolio history, strategies, implementation, timing and deliver a comprehensive and unbiased due diligence that both protects and improves outcomes.

The Supreme Court did not mandate ERISA plan sponsors take such proactive steps, but prudent trustees should take the hint and consider our Peer Fee & Performance Review.

This does not constitute legal advice and does not constitute an attorney-client relationship.

1 The Prohibited Transaction Exemption