Facts of the Case

Provided by Oyez

Cornell University administered two retirement plans for its employees: the Retirement Plan and the TDA Plan. As of 2016, these defined-contribution plans had over 30,000 participants and nearly $3.4 billion in combined net assets. Cornell delegated administrative responsibilities to its Vice President for Human Resources and established the Retirement Plan Oversight Committee (RPOC) to oversee the plans. The plans offered approximately 300 investment options and incurred investment management and recordkeeping fees, with TIAA-CREF and Fidelity Investments serving as both investment providers and recordkeepers.

Plaintiffs, representing a class of plan beneficiaries, sued Cornell and its appointed fiduciaries in federal district court, alleging violations of the Employee Retirement Income Security Act (ERISA), including failure to adequately monitor the plans, resulting in the retention of underperforming investment options and excessive fees, as well as engaging in prohibited transactions under 29 U.S.C. § 1106. The district court dismissed or granted summary judgment to the defendants on most claims, and the parties reached a settlement on the remaining claim before the court entered final judgment. The plaintiffs challenged the district court’s award of summary judgment on two counts, but the U.S. Court of Appeals for the Second Circuit affirmed the lower court.

Questions

  1. Can a plaintiff state a claim under ERISA’s provision prohibiting a plan fiduciary from knowingly engaging in transactions with barred parties, solely by alleging that such a transaction took place?

Conclusions

  1. To state a claim under Section 1106(a)(1)(C) of ERISA, a plaintiff need only plausibly allege the elements listed in that provision itself: that a plan fiduciary knowingly caused the plan to engage in a transaction involving goods, services, or facilities with a party in interest. The plaintiff is not required to plead that the transaction does not qualify for an exemption under Section 1108. Justice Sonia Sotomayor authored the unanimous opinion of the Court.

    Section 1106(a)(1)(C) establishes a clear, categorical prohibition on certain transactions between a pension plan and a party in interest. ERISA’s structure places relevant exemptions, including those for reasonable and necessary services under Section 1108(b)(2)(A), in a separate statutory provision. Because those exemptions are laid out apart from the prohibitions and refer back to conduct already defined as unlawful, they function as affirmative defenses. As a result, plan fiduciaries who wish to invoke an exemption bear the burden of pleading and proving it. Plaintiffs, on the other hand, are not obliged to anticipate and refute every possible statutory or regulatory exemption.

    Reading exemptions as affirmative defenses also aligns with longstanding legal principles and avoids unworkable results. Requiring plaintiffs to negate all exemptions—especially when ERISA includes 21 statutory and hundreds of regulatory exemptions—would be impractical and unfair, particularly because the relevant facts are often in the defendant’s possession. Procedural safeguards such as pleading requirements, discovery limits, and Rule 11 sanctions enable federal courts to deter and manage meritless litigation without shifting the pleading burden to plaintiffs. Consequently, only the elements in Section 1106(a)(1)(C) must be pleaded to survive a motion to dismiss.

    Justice Samuel Alito joined the majority opinion in full and authored a concurrence, in which Justices Clarence Thomas and Brett Kavanaugh joined.