ERISA Litigation Should Cue Higher Ed to Evaluate 403(b) Plans

Higher education has been a recurring target in Employee Retirement Income Security Act litigation for years, and that trend shows no sign of slowing.

Colleges and universities continue to draw scrutiny because their large 403(b) plans often reflect years of accumulated structure: multiple vendors, legacy annuity products, broad investment menus, and governance responsibilities spread across several internal groups and outside advisers.

While none of those features is inherently problematic, an inability to readily show that institutions have reviewed, tested, and affirmatively retained hose arrangements through a prudent fiduciary process creates openings for plaintiffs. Higher education institutions should closely evaluate process, documentation, and governance of their plans.

The recent trend in higher education litigation includes familiar allegations of excessive recordkeeping fees, imprudent investment options, higher cost share classes, and failures in monitoring. But how those claims are being pleaded and analyzed has changed.

Courts have become less receptive to generalized narratives not tied to more concrete allegations. Plaintiffs increasingly are building complaints around specific fee comparisons, alleged failures to benchmark vendor compensation, identifiable lower cost alternatives, and more focused allegations about breakdowns in fiduciary oversight.

Decisions over the last few years reflect this. In Brookins v. Northeastern University, the court allowed the core recordkeeping fee claim to proceed and permitted parts of the investment-related allegations to survive. In Sellers v. Trustees of Boston College, the court denied summary judgment on the recordkeeping fee and challenged investment claims while disposing of the more general plan document and failure-to-monitor claims.

Courts more often are separating claims that can be tied to measurable fiduciary decisions from those that are more derivative, conclusory, or hard to quantify. This important development for institutions narrows the practical question: What claims are likely to survive?

For higher education institutions, the answer is usually documentation and process. Regular committee meetings, the presence of an outside consultant, and a longstanding vendor relationship are insufficient.

Evidence must demonstrate that fiduciaries actually engaged in benchmarking recordkeeping costs. This includes understanding direct and indirect compensation, reviewing whether legacy arrangements remain justified, evaluating lower-cost alternatives, and documenting why the plan’s structure continues to serve participants.

Higher education remains a distinct category within the broader universe of ERISA litigation, because its plans often carry historical features that are less common in the corporate 401(k) world, though the governing legal standards aren’t unique to the sector.

Instead of a single, clean design process, many higher education plans reflect decades of incremental additions such as multiple annuity platforms, vendor relationships that originated in a different retirement plan environment, and internal oversight structures divided among multiple bodies. A complicated history isn’t a legal defect, but such plans do require a clear fiduciary review record to stand up under scrutiny.

In many institutions, “403(b) compliance” isn’t broad enough. The term is still used as shorthand for tax compliance and operational administration, but those areas are only part of the risk picture for ERISA-covered plans in the current litigation environment. The institution must have a defensible fiduciary record on fees, investments, service provider compensation, and governance, demonstrating that the structure was periodically reexamined and deliberately retained.

The US Supreme Court’s 2025 decision in Cunningham v. Cornell University heightens that concern. The Court held that plaintiffs asserting ERISA-prohibited transaction claims aren’t required at the pleading stage to negate the statutory exemptions; they are affirmative defenses.

That makes routine service provider arrangements more difficult to eliminate early in litigation. Plaintiffs now have a clearer path to using prohibited-transaction theories to survive a motion to dismiss, particularly where the allegations focus on compensation paid to recordkeepers and other vendors.

For higher education institutions where those relationships are often longstanding and sometimes complex, Cunningham likely will increase attention to how vendor compensation is structured, monitored, and documented.

Recent settlements underscore another practical point: Not every university 403(b) case produces a blockbuster recovery. But the cost of getting to even modest settlement amounts can be substantial.

Once a case survives the pleadings stage, institutions typically face discovery burdens, committee document collection, expert work, internal interviews, and years of management distraction. The most meaningful risk often isn’t the ultimate settlement number but rather the cost and leverage of a claim that survives long enough to become expensive.

So what should institutions do now? Here are some options:

• Review recordkeeping and administrative fees on a periodic basis using real comparators. Understand not just the headline fee but the full compensation picture, including indirect compensation and any legacy revenue-sharing features.
• Frame investment oversight around documented decision-making, not optics. Fiduciaries must be able to explain why the available options remain appropriate and what review process supports that conclusion.
• Revisit committee and delegation structures with litigation in mind. If responsibility is dispersed across several groups, the institution should be able to explain who is charged with what and how those roles fit together.
• Resist the instinct to treat inherited or legacy arrangements as untouchable simply because they are long-standing. Review, pressure-test, and document them now.

The institutions that can demonstrate disciplined fiduciary oversight over time will be best positioned for the next phase of higher education ERISA litigation. Plaintiffs’ firms are pleading more carefully. Courts are drawing finer distinctions.

And after Cunningham, service provider relationships may be harder to dismiss out of a case at the outset. Prudent governance becomes a litigation strategy in such a landscape.

The Department of Labor on March 31 proposed a rule on fiduciary duties in selecting designated investment alternatives. The rule is designed to reduce litigation risk but, if passed, it likely would turn the central question in these cases to whether institutions can prove they followed the required process in real time and documented that work in a way a court can evaluate.

For colleges and universities, that only reinforces the central theme of current 403(b) litigation: Process, documentation, and governance remain the best defense.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Michael McGovern is an employee benefits and executive compensation partner at Barclay Damon.

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