Cunningham v. Cornell Univ.
The Supreme Court ruled unanimously that employees suing over excessive retirement plan fees need only allege the basic elements of a violation — they don't have to preemptively knock down legal exemptions the employer hasn't even invoked yet.
The decision resolves a split between federal appeals courts and makes it somewhat easier for retirement plan participants to get lawsuits past an initial screening, while leaving employers free to raise exemptions as defenses on their own.
How it got here: A federal district court dismissed the employees' claim; the Second Circuit affirmed on different grounds; the Supreme Court granted certiorari to resolve a split with the Eighth Circuit and reversed.
The Case in Depth
What happened
Cornell University administered two retirement plans for its employees, hiring TIAA and Fidelity as recordkeepers. A class of current and former Cornell employees claimed the university paid those companies far more than a fair market rate — roughly $115 to $200 per participant per year instead of what they said should have been about $35. They sued Cornell under a federal pension law called ERISA, which prohibits plan managers from engaging in certain transactions with service providers without justification.
The question before the Court
When retirement plan participants sue their employer for paying excessive fees to fund managers, must they preemptively disprove every legal exemption the employer might raise as a defense?
The Court's answer
No — a retirement plan participant suing under ERISA § 1106(a)(1)(C) needs only to allege three things: that a plan fiduciary caused the plan to enter into a transaction, that the fiduciary knew or should have known it involved furnishing goods or services, and that the transaction was between the plan and a "party in interest" (a plan insider or service provider like a recordkeeper). Nothing more is required to survive an initial challenge to the lawsuit.
The legal exemptions in ERISA § 1108 — including the exemption for reasonable and necessary service arrangements — are affirmative defenses. It is the employer or plan administrator who must raise these exemptions and prove they apply. Plaintiffs are not required to anticipate and disprove defenses the other side has not yet invoked, especially when there are 21 statutory exemptions and hundreds of additional regulatory ones that any given defendant might rely on.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
Millions of workers whose retirement savings are managed under ERISA now have a clearer path to challenge excessive fees in court without first dismantling a wall of legal exceptions. Employers and plan administrators must raise and prove their own exemptions. Courts retain tools — including discovery limits, sanctions, and fee-shifting — to screen out weak cases before they become costly.
What changes now
The case returns to the lower courts, where the employees' lawsuit can now proceed under the correct standard. Cornell and the other defendants may still raise the § 1108 exemption as a defense and, if they prove the service arrangements were reasonable and necessary, they will not be held liable. The decision also signals to district courts that they should make active use of existing procedural tools — especially requiring plaintiffs to respond specifically to raised exemption defenses — to keep meritless cases from reaching costly discovery.
What this does not decide
The Court did not decide whether Cornell actually violated ERISA or whether the § 1108 exemption for reasonable service arrangements applies to these specific transactions. It decided only a procedural question: who must raise and prove the exemption. The merits of the fee dispute remain open on remand.
Concurrences and dissents
Concurrence — Justice Alito
Justice Alito agrees fully with the legal analysis — § 1108 sets out affirmative defenses and plaintiffs need not plead around them. But he writes separately to flag a practical problem: every ERISA plan must hire outside service providers, and those providers automatically become 'parties in interest,' meaning a plaintiff can always survive a motion to dismiss just by describing something the administrator was essentially compelled to do. In modern litigation, surviving that initial hurdle often pressures defendants to settle even winning cases. Alito urges district courts to use all available procedural safeguards — especially requiring plaintiffs to reply specifically to raised exemptions — and acknowledges whether those measures will prove adequate remains to be seen.
How the Court got there
The legal reasoning, step by step
- ERISA § 1106(a)(1)(C) establishes a categorical three-element prohibition: a plan fiduciary (1) caused the plan to engage in a transaction (2) that the fiduciary knew or should have known involved furnishing goods or services (3) to or from a 'party in interest,' such as a service provider. Nothing in that section carves out transactions that are necessary or reasonably priced — any transaction meeting all three elements is presumptively unlawful.
- The Court applied a well-settled rule of statutory interpretation: when a statute places exemptions in a separate provision from its prohibitions, and those exemptions explicitly reference the prohibited conduct, the exemptions are affirmative defenses. That means the party seeking to benefit from them — the defendant — bears the burden of raising and proving them, not the plaintiff.
- The Court drew on its 2008 decision in Meacham v. Knolls Atomic Power Laboratory, which addressed a nearly identical structure in the Age Discrimination in Employment Act. There, general prohibitions appeared in one section and exemptions in another; the Court held the exemptions were affirmative defenses the employer had to plead and prove. ERISA is structured the same way: § 1106 defines prohibited transactions and § 1108 separately lists exemptions from them.
- The employers argued that the phrase '[e]xcept as provided in section 1108' at the start of § 1106(a) makes the exemptions into elements a plaintiff must preemptively disprove. The Court rejected that reading. The section headings — 'Prohibited transactions' for § 1106 and 'Exemptions from prohibited transactions' for § 1108 — confirm that § 1106 alone defines the offense. Moreover, the employers' reading would require plaintiffs to plead against all 21 statutory exemptions plus hundreds of Labor Department regulatory exemptions before knowing which ones the defendant will even invoke — an unworkable and unfair burden.
- The Court also distinguished a 19th-century criminal-pleading rule from United States v. Cook, which respondents cited in support. The Court explained that Cook addressed constitutional protections specific to criminal indictments; the civil context does not trigger those same concerns, and even in criminal cases it has long been settled that a pleading need not preemptively refute every separate exception.
- Practical concerns about meritless litigation could not override the statutory text and structure. The Court noted that district courts already have existing tools to screen out weak cases: ordering plaintiffs to reply specifically to a raised exemption defense, dismissing suits that lack a concrete injury, limiting or expediting discovery, imposing sanctions for bad-faith filings, and shifting attorney's fees under ERISA's own cost-shifting provision.
Doctrinal impact
Cases affected by this decision
Reaffirms Meacham v. Knolls Atomic Power Laboratory (554 U. S. 84)
Confirmed as controlling authority for treating separately enumerated statutory exemptions as affirmative defenses defendants must prove.
Distinguishes United States v. Cook
Limited to criminal indictments based on constitutional concerns; does not require civil plaintiffs to preemptively negate statutory exceptions.