May 2025 ERISA Litigation Update: 

Given the continuing wave of ERISA litigation, this article has become a mainstay of The Speed Reader. A sample of recent cases is provided below.

The most common type of ERISA case involves retirement plan participants’ allegations that plan fiduciaries caused participants to pay excessive recordkeeping and investment fees and included one or more poorly-performing investment options in the plan. Recent cases in this category include the following:

• Khan v. Board. of Directors of Pentegra Defined Contribution Plan (jury’s decision in favor of plaintiffs announced on April 23 by the U.S. District Court for the Southern District of New York)

In this connection, on April 17, the U.S. Supreme Court (the “Court”) issued an important decision in the Cunningham v. Cornell University case. The plaintiffs (participants in the defendant’s 401(k) plans) allege that the defendant caused the plans to engage in prohibited transactions by allowing the recordkeepers to charge fees that were unreasonable, in violation of ERISA. The trial court dismissed the plaintiffs’ prohibited transaction claim. The appeals court affirmed that ruling, holding that ERISA requires plaintiffs to plead that a transaction was “unnecessary or involved unreasonable compensation” in order to survive a motion to dismiss their case.

Surprisingly, the Court ruled that to survive a motion to dismiss, plaintiffs only have to plausibly allege ERISA’s prohibited transaction elements, without addressing potential exemptions. (One  exemption used by almost all plans is the exemption that allows plans to contract with service providers if the arrangement is reasonable in light of the services provided.) Under the extremely broad ERISA general rule, those prohibited transaction elements are as follows: fiduciaries cannot (1) cause a plan to engage in a transaction; (2) that the fiduciaries know or should know  constitutes a direct or indirect furnishing of goods, services, or facilities; (3) between the plan and a party in interest.

Further, the Court stated that ERISA’s prohibited transaction exemptions are affirmative defenses that defendants must plead and prove if they seek to benefit from those exemptions.

The Court also stated that the plaintiffs’ “practical concerns about meritless litigation [as a result of the Court’s ruling] cannot overcome the statutory text and structure. District courts have various tools available to screen out meritless claims,” such as dismissing claims that fail to identify a concrete injury and limiting discovery. The Court noted:

• “Of course, a plaintiff will not prevail by simply pleading, and later proving, the [three prohibited transaction] elements. If a defendant establishes that [an exemption] applies, the [prohibited transaction] claim will ultimately fail. As relevant here, this means that if respondents establish that a transaction prohibited under [ERISA’s prohibited transaction rules] was for “services necessary for the . . . operation of the plan” and “no more than reason able compensation [was] paid therefor,” they cannot be held liable for causing the plan to enter into the transaction. At the pleading stage, however, it suffices for a plaintiff plausibly to allege the three elements…”

The concurring opinion added that ERISA provides affirmative defenses to prohibited transaction claims, and it is settled law that a plaintiff does not have to plead affirmative defenses. That concurring opinion, however, also reached the crux of the matter by stating that “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 the litigation continued.”

Presumably, future excessive fee lawsuits will be filed as prohibited transaction claims in order to avoid a motion to dismiss and proceed to discovery. This has already led many people working in the employee benefits field to fear that this Court decision will encourage plaintiffs’ law firms to file ERISA fee and expense lawsuits that have little (if any) merit. 

I think that fear is reasonable. Despite the Court’s statement that “courts have various tools available to screen out meritless claims,” the fact remains that as a result of this decision, it is likely that fewer dubious lawsuits will be dismissed in their early stage. Plaintiffs now only have to allege the mere existence of a prohibited transaction in order to survive a motion to dismiss their case. That can essentially be done by simply stating in their complaint that the defendant plan fiduciaries engaged a third party expert to help administer the fiduciary defendants’ retirement plan.

Further, fewer dubious lawsuits being dismissed in their early stage will result in defendants having to endure at least part of the expensive, time-consuming discovery process. It will be interesting to see if settlements become more the norm in these cases, as defendants in even the dubious cases seek to avoid the discovery process.     

Other types of recent ERISA cases are as follows:

LeBoeuf v. Entergy Corporation (ruling issued on May 1 by the U.S. Court of Appeals for the Fifth Circuit):  The plaintiffs in this case are children of an individual who, prior to his death, participated in the defendants’ 401(k) plan. They allege that the defendants breached their ERISA fiduciary duty, by providing materially misleading information in quarterly plan statements sent to the participant regarding his beneficiary designation after he remarried.

As background, after the participant’s first wife died, he named their four children as his beneficiaries under the plan. He did so by signing and submitting a beneficiary designation form to the defendant plan sponsor. The form stated that if a participant were to remarry after submitting the form, that form’s beneficiary designation would be revoked unless his or her new spouse consented to that form’s designation. The participant subsequently remarried.

Before and after that second marriage, the participant received quarterly plan statements from the plan’s recordkeeper. Those statements listed the plaintiffs as the participant’s beneficiaries, per his beneficiary designation form. Not surprisingly, those statements did not refer to the plan provision under which marriage nullifies a prior beneficiary designation absent a spousal waiver. During the participant’s lifetime, his second spouse did not execute a spousal waiver regarding her status as his beneficiary. Accordingly, the defendant plan committee directed the recordkeeper to distribute the participant’s benefit to his second spouse when he died.

The plaintiffs contended that the defendants breached their purported duty “to not misrepresent plan provisions,” in that the quarterly statements arguably confirmed the participant’s designation of the plaintiffs as his beneficiaries and did not inform him that his second marriage invalidated that designation. In rejecting the plaintiffs’ position, the court explained:

• Plan participants have a duty to inform themselves of plan provisions, and fiduciaries are not liable for a participant’s confusion about plan terms about which the participant has not inquired. Here, the participant received at least twenty-five quarterly statements after his second marriage, but he never inquired about his remarriage’s impact on his prior beneficiary designation.
• The defendant plan committee complied with its fiduciary duty by accurately providing the plan’s provisions to the participant, including provisions regarding remarriages’ effects on prior beneficiary designations.

Sievert v. Knight-Swift Transportation Holdings, Inc. (dismissed on April 29 by the U.S. District Court for the District of Arizona):  This case is part of a new wave of ERISA litigation, in which the plaintiff (a retirement plan participant) alleges that plan fiduciaries violated ERISA via their use of plan forfeitures. Specifically, the plaintiff alleges that the defendants breached their ERISA duties by using forfeitures solely to help fund employer contributions rather than to pay plan expenses.

The plaintiff here cited the 401(k) plan’s 2022 Form 5500, which stated that “[f]orfeitures of nonvested contributions and earnings thereon shall be used to pay Plan expenses and to the extent any remain, to reduce the Company’s matching contribution.” The plaintiff then contended that “contrary to this statement, Defendant did not first use forfeitures to pay the Plan’s administrative expenses, but rather used the forfeited assets to reduce its own future matching contributions, then charged the expenses to participants’ individual account.”

The defendants argued that under ERISA, the plan, not any Form 5500 filing, describes a plan participant’s rights and benefits, and the plan document here grants the defendant broad discretion to choose whether to use forfeitures to offset employer contributions or to pay plan expenses.

The court framed the issue as follows: “[t]he question is whether Defendant violated ERISA by representing under penalty of perjury, in its Form 5500s, that Plan forfeitures would be used to pay administrative expenses, but ultimately using those forfeitures to decrease its own contributions.”

In granting the defendant’s motion to dismiss the case, the court began its analysis by citing an established rule under ERISA. Namely, if a plan’s terms comply with the law, a fiduciary must comply with the terms of that plan as written. The court then stated:

• Long-standing IRS regulations permit forfeitures in defined contribution plans to be used to reduce future employer contributions.
• Under the plaintiff’s theory, in every situation where a fiduciary is given the choice between using forfeited funds to pay plan expenses or reduce employer contributions, the fiduciary is always required to pay plan expenses. That is too broad.
• The plaintiff has not shown that the Form 5500s created any binding legal obligation for the defendant to use forfeitures to pay plan expenses. Even if the plaintiff had, and even though those Forms 5500 said that forfeitures “shall” be used to pay plan expenses, those Forms 5500 also stated that “Company contributions are reduced by forfeitures.” At any rate, a Form 5500 filing “does not govern Plaintiffs’ rights and Knight-Swift obligations, the Plan document does,” and the defendant complied with the plan document.

Rodriguez v. Intuit, Inc. (notice of settlement agreement filed by the parties on April 29 in the U.S. District Court for the Northern District of California):  This is another case in the continuing wave of forfeiture cases like the Sievert case discussed above.

The plan document in this case provided plan fiduciaries with significant flexibility regarding the use of forfeitures. The relevant provisions are as follows:

• Forfeitures “shall be applied, at the Company’s election, to: (i) pay expenses of administering the Plan; (ii) with respect to forfeitures of Matching Contributions or Safe Harbor Matching Contributions, reduce the Participating Employers’ obligation to make Safe Harbor Matching Contributions; and (iii) with respect to forfeitures of Profit Sharing Contributions, allocated as Profit Sharing Contributions…”

In their recent court filing the parties state that they plan to execute the settlement agreement, and the plaintiff “will file an unopposed motion and memorandum for preliminary approval of the settlement by May 16, 2025.” It will be interesting to see what the settlement’s terms are, especially given the above-referenced plan document language granting the defendants with significant discretion regarding how to use forfeitures.