Cases & Developments

Executive Order: Democratizing Access to Alternative Assets for 401(K) investors. This order requires the Secretary of Labor to reexamine the Department of Labor’s (DOL) guidance on a fiduciary’s duties regarding alternative asset investments in ERISA-governed 401(K) and other defined-contribution plans. Current ERISA-governed plan fiduciaries are limited from including alternative assets in their investment offerings. The purpose of the order is to promote retirement security through diversified investments, specifically, access to alternative assets such as private equity, real estate, and digital assets, and to clarify the DOL’s position on alternative assets and the appropriate fiduciary process for asset allocation funds. The White House also issued a Fact Sheet  with the order. 

U.S. Department of Labor (the Department) announced its rescission of 2022 guidance that previously directed plan fiduciaries to exercise “extreme care” before including cryptocurrency options in 401(k) retirement plans. The announcement stated that the 2022 language “deviated from the requirements of the Employee Retirement Income Security Act” (ERISA) and “marked a departure from the department’s historically neutral, principled-based approach to fiduciary investment decisions.” It also framed the 2022 guidance as an “overreach” of federal power and stated that “investment decisions should be made by fiduciaries, not D.C. bureaucrats.” The announcement concluded by stating that the rescission reaffirms the Department’s “neutral stance, neither endorsing, nor disapproving of, plan fiduciaries” who wish to include cryptocurrency in a plan’s “investment menu.”  

Memorandum Opinion Reversing and Remanding. Plaintiffs, a class of current and former Cornell University employees who participated in the University’s retirement plans from 2010-2016, brought suit against the University and other plan fiduciaries alleging that defendants violated §1106(a)(1)(C) by causing the plans to engage in prohibited transactions for recordkeeping services. The Second Circuit found that “the language of §1106(a)(1) cannot be read to demand explicit allegation of ‘self-dealing or disloyal conduct.’” It held the exemptions to §1106(a)’s prohibited transactions contained in §1108 imposed additional pleading requirements, and the exemptions cannot be understood merely as affirmative defenses to the conduct proscribed in §1106(a). The Second Circuit split from the Eighth Circuit, which held that no additional pleading requirements beyond §1106(a)(1) apply to prohibited-transaction claims. Following the circuit split, the U.S. Supreme Court granted certiorari to decide whether a plaintiff can state a claim for relief by simply alleging that a plan fiduciary engaged in a transaction proscribed by §1106(a)(1)(C), or whether a plaintiff must plead allegations that disprove the applicability of the §1108(b)(2)(A) exemption. In reversing the Second Circuit holding, the unanimous Court concluded that plaintiffs need do no more than plead a violation of §1106(a)(1)(C). The Court found that the relevant part of Section 1106 includes three elements: (1) causing the plan to engage in a transaction; (2) that “constitutes…furnishings of…services”; (3) “between the plan and a party in interest.” The Court further reasoned that the proper method of proceeding is for the plaintiff to point to the transaction with the service provider, and for the service provider to point out any particular exemption that might protect it; if a §1108 exemption applies, the §1106(a)(1)(C) claim will ultimately fail.  

Amicus Brief from the American Council on Education (ACE) and 13 other higher education associations in Casey Cunningham v. Cornell University. The case turns on whether federal courts should require specific allegations of mismanagement to proceed with a claimed Employee Retirement Income Security Act (ERISA) violation, or, if a more lenient pleading standard should apply. Through this amicus brief, the associations ask the Supreme Court of the United States to affirm the Second Circuit’s decision, upholding the lower court’s reasonable pleading standard that allows legitimate claims to proceed while requiring complaints to specifically allege impropriety in an institution’s contract with a third-party service provider. The associations argue that adopting the more relaxed pleading standard proposed by plaintiffs will hinder current effective plan administration, and burden institutions with excessive costs to defend against or settle unwarranted litigation. Argument on the case is set for January 22, 2025.  

Memorandum Opinion and Order granting-in-part and denying-in-part Defendants’ Motion to Dismiss. Plaintiff, a former employee at Howard University brought claims under the Employee Retirement Income Security Act alleging violations of the joint and survivor annuity (JSA) actuarial equivalence requirement and the definitely determinable rules requirement, as well as breach of fiduciary duty against the University and the University’s Retirement Plan Committee. Plaintiff asserted that the University violated the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 by using outdated formulas to calculate benefits paid out to eligible University retirees. Plaintiff alleged that the University’s retirement Plan used “antiquated actuarial assumptions” while reliance upon “reasonable actuarial assumptions” in the form of the Treasury Department’s preferred numbers to make a horizontal conversion would increase his monthly payout by $17.99 (about 3%). The court permitted plaintiff’s claims for violation of JSA actuarial equivalence requirements to proceed, finding a narrow challenge to the horizontal conversion from a straight life annuity (SLA) to a JSA sufficient to allege financial harm. In allowing plaintiff’s breach of fiduciary duty requirements to proceed, the court found “a violation of one of ERISA’s substantive requirements-like the actuarial equivalence standard-can constitute a breach of fiduciary duty.” The court dismissed plaintiff’s claim for violation of the definitely determinable rules requirement under ERISA as time barred.  

Memorandum of Decision granting-in-part and denying-in-part Defendants’ Motion for Summary Judgment. Plaintiffs, two former or current participants in 401(k) plans at Boston College from 2016 to the present, brought this class action against the College and its Plan Investment Committee alleging that they did not act prudently with respect to certain Plan recordkeeping fees and certain investments and that they did not follow the Plan Investment Policy Statement (IPS) or properly monitor Plan fiduciaries and service providers. The court dismissed the recordkeeping fee claims related to 2016 to 2018 for lack of evidence of loss, but it permitted the claims related to fees from 2018 to the present to proceed, finding genuine disputes as to whether it was prudent not to consolidate to a single recordkeeper, whether the Committee was aware of a distinction among fees, and whether Committee members had a conflict of interest warranting recusal. The court permitted plaintiffs to proceed regarding the prudence of the challenged investments, finding factual disputes as to whether the Committee sufficiently discussed and considered alternatives to two investment accounts, but it dismissed their claim that the Committee failed to monitor these investments. It also dismissed the claim that the Committee failed to follow the Plan IPS, finding that the IPS permitted the Committee significant discretion on whether to change investments and that the Committee had met the IPS’s documentation requirements.