Cornell Workers’ ERISA Case Will Be Reviewed by Supreme Court

Cornell University workers on Friday convinced the US Supreme Court to review a circuit split over how relationships between benefit plans and their service providers can be challenged under ERISA.

The workers asked the justices to review the US Court of Appeals for the Second Circuit’s 2023 decision addressing what benefit plan participants must allege to show that an arrangement between a plan and its service provider violates the Employee Retirement Income Security Act’s prohibited transaction rules.

According to the Second Circuit, which was considering the question for the first time, a prohibited transaction claim based on money paid to a retirement plan service provider must include allegations that the services were unnecessary or that the compensation was unreasonable.

This is both wrong and in conflict with the Eighth and Ninth circuits, which apply ERISA as written and require only allegations of an arrangement in which plan payments are exchanged for services by an interested party, the workers said in their petition for Supreme Court review. The Second Circuit, along with the Third, Seventh, and Tenth circuits, incorrectly require additional allegations suggesting fraud in order for an ERISA prohibited transaction claim to advance, they said.

The justices in April asked Cornell to respond to the petition, signaling someone at the court was interested in the case. Cornell opposed having the justices weigh in saying the Second Circuit correctly required the workers to plead both the existence of a recordkeeping contract and the contract’s illegality. The workers “candidly admit” that their contrary position would allow a plaintiff to proceed to discovery “without any suspicion of wrongdoing,” the school said.

The Second Circuit’s decision favoring Cornell affirmed a 2019 ruling rejecting nearly all of the workers’ ERISA claims involving their plan’s fees and investments. The workers were allowed to proceed with one claim challenging the plan’s TIAA-CREF target-date funds, but the parties later settled it for $225,000.

Mayer Brown LLP represents Cornell. Schlichter Bogard LLP and the University of Virginia School of Law Supreme Court Litigation Clinic represent the workers.

The case is Cunningham v. Cornell Univ., U.S., No. 23-1007, cert. granted 10/4/24.