By: David Ostrowsky

For fiduciaries of health and retirement plans, things have gotten more complicated.

In what has been a very busy spring for the Supreme Court, it recently heard the case of Cunningham et. al. v. Cornell University, in which the plaintiffs, representing over 30,000 current and former employees enrolled in Cornell University’s 403(b) retirement plans (which contained approximately $3.4 billion in net assets), claimed that the plan fiduciaries violated ERISA by neglecting to remove low performing investments and engaging in prohibited transactions, namely paying excessive recordkeeping fees to retain two recordkeepers. While most of these claims had been dismissed by lower courts—the Second Circuit interpreted ERISA to mean plaintiffs were required to show that services were unnecessary or fees were unreasonable to state a claim—the plaintiffs ultimately prevailed as the high court, in a unanimous 9-0 ruling delivered by Justice Sotomayor, agreed to reverse the lower courts’ rulings. 

Essentially, the Supreme Court’s decision will empower millions of employees belonging to retirement and health benefit plans nationwide to file claims by alleging improper transactions without having to prove additional elements such as harm or unreasonable conduct in the pleading stage. More specifically, they will only have to allege three things—the fiduciary caused the plan to engage in a transaction; the fiduciary should have known the transaction involved furnishing of goods and services; and the transaction was between a plan and party of interest—and no longer have to defeat the affirmative defense that reasonable compensation is necessary, a pleading standard that is very hard to meet. In short, it will be easier for them to survive a motion to dismiss their respective cases. Meanwhile, administrators of private health and retirement plans will now be under greater scrutiny to fulfill their fiduciary obligations to plan participants and thus be accountable for demonstrating compliance with rules regarding prohibited transactions, documenting necessity of services procured, and evaluating reasonableness of fees.

But, looking at this case from a different perspective, it’s interesting to examine who exactly are the plan participants in the case of Cunningham et. al. v. Cornell University. As previously mentioned, tens of thousands of Cornell employees—both past and present—took their case to the Supreme Court because, quite simply, they felt as though they were getting shortchanged by the stewards of their retirement plans. While some of these employees were extremely well-compensated (i.e., the president, the provost, and the chancellor), the majority of them were not. Whether they were janitorial workers, lab technicians, administrators, or nursing assistants who toiled for years to keep the university up and running, every dollar in their respective retirement accounts really mattered and understandably they want to know how those dollars are being spent. And in the world of healthcare benefits, health plan members stand to enjoy greater transparency when it comes to being aware of not just fees specifically for health services, but also those for brokers, vendors, pharmacy benefit managers (PBMs), and TPAs among other entities. After all, there are so many fees a health plan pays and participants have a vested interest in ensuring they are reasonable and not duplicative.

That is why this case really matters, because regardless of the industry involved, plan administrators are safeguarding the hard-earned retirement funds (and in many cases, assets used to fund healthcare services) of real people. And now they are going to be held more accountable for properly doing so while acting in a transparent manner as the risk of encountering lawsuits brought on by plan members for allegedly high fees will be heightened.