Think your organization’s retirement plan is safe because you’re doing everything by the book: paying fair fees, hiring reputable vendors, following the rules? Think again.
A recent Supreme Court ruling involving Cornell University just shook the foundation of the retirement plan industry. Now, even following best practices might not shield you from a lawsuit. If you sponsor a retirement plan, this ruling should be on your radar.
Even a Well-Run Plan Is Now a Legal Target
In that decision, the Court lowered the bar for lawsuits tied to plan fees, service providers, and fiduciary decisions, even if you’ve made those decisions for years without issue. Employees can now sue without showing that you did anything wrong. Instead, the burden of proof is now squarely on your organization to prove it did everything right.
Like many of your peers, you might think your plan is well-run. But under this new legal standard, that’s no longer enough. Unless you can back up every decision with clear, documented justification, you could be exposed.
The Hidden Risk in Day-to-Day Retirement Plan Administration
According to ERISA expert Fred Reish, this new legal development is a reason to worry. He explains that “every plan commits prohibited transactions.” That likely includes yours. Simply paying a recordkeeper, investment manager, or other service provider is technically a transaction with a “party in interest.” That’s normal and nothing new. And it’s not illegal—if the plan meets certain conditions laid out in ERISA regulations, like ensuring services are necessary and fees are reasonable.
Here’s the new twist: in April 2025, the Supreme Court ruled in Cunningham v. Cornell University that plaintiffs don’t need to prove those conditions weren’t met. Now, the burden is entirely on plan fiduciaries to demonstrate they followed the rules.
Guilty Until Proven Compliant
Previously, if an employee filed a lawsuit claiming a prohibited transaction, the court might dismiss the case unless the plaintiff could show upfront that the plan was unreasonable. That safeguard is gone.
Now, it only takes a plausible allegation that the plan paid someone like a recordkeeper or consultant (which every plan does). And just like that, you’re in litigation, and forced to take the time, expense and distraction to defend every aspect of your process.
That includes:
- How you selected your vendors
- Whether the services were necessary
- How you determined the fees were reasonable
- Whether you benchmarked against comparable plans
- What documentation you kept
If that sounds like a tall order, it is. And the cost of defending a lawsuit, even one without much merit, can be enormous.
Justice Alito’s Warning: Routine Actions Can Now Trigger Lawsuits
Even the Supreme Court seemed uneasy about how far this could go. Justice Samuel Alito called it out in a separate opinion:
“The upshot is that all that a plaintiff must do … is to allege that the administrator did something that, as a practical matter, it is bound to do.”
In plain English? Even doing what every plan sponsor is supposed to do, like hiring a recordkeeper, can now be grounds for a lawsuit. The courts won’t dismiss it early. You’ll be forced to defend your decisions in court unless you’ve got clear documentation that everything was necessary and reasonably priced.
Why This Matters for Your Organization
You don’t need to run a giant university like Cornell to be affected. The ruling applies to every employer that sponsors a retirement plan governed by ERISA. That includes businesses of all sizes, many of which lack the resources or legal expertise to navigate complex fiduciary defenses.
And with the burden of proof now shifted, plaintiff firms don’t need a smoking gun to drag you into court. They just need a few basic facts, and you’re left scrambling to justify every decision.
What Can You Do to Prepare?
Clearly, risk has risen. That’s why it’s wise to go back and ensure you have solid processes and documentation systems in place. Here are some ideas to consider:
1. Benchmark fees regularly
Don’t assume your recordkeeper or advisor is charging a fair price just because you’ve worked with them for years. Use independent benchmarks and document your process. (For more information please see our previous article on the topic.)
2. Justify every vendor relationship
Every service provider should meet a clear need. Why are they on the plan? What services do they deliver? Are the participants getting value? Put it in writing.
3. Review and store your 408(b)(2) disclosures
These required disclosures show the fees and services provided. Review them and keep them organized.
4. Keep notes on every fiduciary decision
Anytime you review fees, evaluate a new provider, or renew a contract, document the discussion and rationale. A short summary in meeting minutes or a decision memo can be your best protection later.
5. Train your retirement plan committee
Everyone involved in plan oversight must understand these risks. This is especially important for those who are not finance or legal professionals, so be sure to keep them updated and ensure they know what’s at stake. Because if something goes wrong, fiduciary liability can extend to individuals, not just the company.
For more specifics, please see our previous article on the topic of best practices for retirement plan documentation.
Bottom Line: Focus on Defensive Documentation
You don’t need to panic, as every plan sponsor is in this same boat. But you do need to take action and ensure you’re adequately documenting all retirement plan actions.
Fred Reish warns, “The plaintiffs’ bar is very aware of this, and we are likely to see more cases in the future.” If your plan’s documentation is sloppy or your fees aren’t defensible, this legal shift turns everyday decisions into potential liabilities.
By taking action now, you can reduce your risk and strengthen your position if litigation arises. ERISA strategist Tina Anstett notes that it will take time to see how lower courts apply this ruling—and that future legislative relief is possible. But until that happens, the responsibility falls squarely on plan sponsors to document, defend, and prepare.
Wondering if your organization’s retirement plan is at risk?
Schedule a complimentary review today. We’ll help you spot any weak points and learn how to remedy them before they become problems.
