April 19, 2025
The U.S. Supreme Court’s revival of Cornell University workers’ class action alleging excessive retirement plan fees will likely spur a rise in lawsuits zeroing in on employers’ arrangements with recordkeepers and other service providers, and could make those cases tougher to knock out of court, attorneys say.
Thursday’s unanimous decision breathed new life into allegations that costly plan recordkeepers caused transactions that are prohibited under the Employee Retirement Income Security Act, reversing a district court’s dismissal from 2017 that a Second Circuit panel had affirmed in 2023. The court rejected Cornell’s argument that in order to advance a prohibited transaction claim under ERISA, workers had to plead elements of a prohibited transaction as well as pleading that their employer did not meet the conditions of an exemption.
Justice Sotomayor’s opinion said that reading was backed by ERISA’s text and court precedent.
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Michelle Yau, who chairs the employee benefits and ERISA practice at Cohen Milstein Sellers & Toll PLLC, complimented the decision: “I love the fact that it was a nice, crisp, clear holding to compare it to Hughes,” she said, referring to the Supreme Court’s Thursday decision compared to its 2022 ruling on ERISA pleading standards in Hughes v. Northwestern. In Hughes, the justices revived Northwestern employee retirement plan participants’ suit alleging mismanagement after concluding a district court erred in dismissing claims over allegedly imprudent investment options because better options were also offered in their plans.
Yau said the court’s ruling that workers don’t have to plead around exemptions to prohibited transactions in ERISA was “incredibly relevant” to active class action litigation.
“We really did need the Supreme Court to make clear what the law is,” Yau said. She pushed back on characterizations from the defense that the high court’s reversal would spur a “monsoon” in new class actions being filed against employers, but said she expected motion practice to speed up.
“I don’t actually think it’s going to create more litigation. I think it’s actually just going to be helpful for the courts to dispense with Rule 12 motions quickly, because before you were seeing them sit,” sometimes for a year or longer, Yau said. “I just think they’re going to move much more efficiently,” she added.
Read High Court’s Cornell Ruling Eases Path for ERISA Suits.