Plan Fiduciaries – ERISA Benefits Law

The Plaintiffs’ Bar Has AI, Too

If your company sponsors a 401(k) plan, a pension, or a self-insured health plan, you are a potential defendant — and whether you become an actual one has less to do with whether you did anything wrong than with whether your plan is large enough to attract attention. Whether you win or settle an ERISA fiduciary lawsuit depends on whether your conduct as a fiduciary is documented in such a way as to defeat the Plaintiff bar’s template complaint. This has been fundamentally true for retirement plans for two decades. Two developments make it more urgent today: First, in April 2025 the Supreme Court made these cases significantly easier to file and harder to dismiss. And second, the targeting engine that the Plaintiff lawyers use to choose defendants now runs on the same public data and inexpensive AI that everyone else has access to.

The good news is that the best defense is the same as it has always been, only more so: a prudent, documented fiduciary process. The faster and cheaper it becomes to find you, the more your fiduciary file — not your luck — is what protects you.

Four things every Plan fiduciary should do, explained below:

1. Stop assuming you are too small or too clean to be sued. Target selection tracks plan size, but AI-assisted template-ability is lowering the bar. Fiduciary misconduct (or lack thereof) is not what determines whether you will be sued.
2. Build (or enhance) your prudent documentation process now — because after *Cunningham*, the fight moves to discovery, where documentation wins or loses it.
3. Audit the specific items plaintiffs are litigating today — fees, forfeitures, PBM oversight, and tobacco surcharges.
4. Govern your own benefits team’s AI use so it reduces your exposure instead of quietly creating it.

The ERISA litigation machine is already running

ERISA fee litigation is not a series of one-off disputes; it is a repeatable business model. A relatively small number of plaintiffs’ firms file large volumes of near-identical complaints, and they pick targets from public information — principally the Form 5500 that every plan files and that anyone can read, plus SEC filings and plan documents.

The selection criteria they use are revealing. Industry trackers of this litigation observe that suits overwhelmingly target large plans — and, counterintuitively, often target large plans whose fees are already low. That is not a paradox if you consider the economics: the settlement leverage comes from plan size and the cost of defense, not from the size of any actual overcharge. A Plaintiff firm scanning for its next case is looking for a plan big enough to justify the effort and a fact pattern that fits a complaint it has already written fifteen times. While size still matters when it comes to the risk of being sued, AI efficiency gains are lowering the bar.

The question is not “did this fiduciary breach a duty?” It is “can we plausibly (and efficiently) allege one against a plan this size?” Increasingly, your ability to defend yourself, not your size or your innocence, is what keeps you off the list.

The bar recently dropped: Cunningham v. Cornell

On April 17, 2025, the US Supreme Court unanimously decided Cunningham v. Cornell University, 604 U.S. ___ (2025), and changed the math on a whole category of these cases. The question was technical but the consequence is not. To state a prohibited-transaction claim under ERISA § 406(a) — for example, that the plan paid a recordkeeper, who is a “party in interest” — must the plaintiff also plead that none of § 408’s exemptions (including the everyday exemption for reasonable compensation for necessary services) applies?

The Court said no. The § 408 exemptions are affirmative defenses the fiduciary must raise and prove; the plaintiff need only allege the bare elements of § 406, which is ridiculously easy to do. In practice, that means a plaintiff can survive a motion to dismiss by alleging something nearly every plan does — paying its service providers — and proceed into discovery. The Court openly acknowledged the risk that this opens the door to more litigation and pointed lower courts to tools to weed out meritless claims (Rule 7(a) replies, Article III standing, limited discovery, Rule 11 sanctions, and cost-shifting). The concurrence was blunter, warning of “untoward practical results.”

Why it matters to you: in ERISA fiduciary litigation, even before Cunningham, the motion-to-dismiss stage had become “the whole ball game.” Once a case clears that hurdle, the cost and disruption of discovery push even strong defendants toward settlement. Cunningham lowered that bar. This increases the stakes – your process now carries more of the weight — and that is built long before any complaint is filed.

The frontier is widening

The Plaintiff’s legal theories are multiplying, and they are reaching plan types that used to feel safe.

– Forfeitures. Beginning with a September 2023 suit against Thermo Fisher, roughly fifteen near-identical class actions have challenged a practice the IRS has expressly permitted for decades — using 401(k) forfeitures to offset employer contributions rather than to reduce participant expenses. Defendants named include Intuit, Clorox, Qualcomm, HP, and BAE Systems. Results are split: some courts have dismissed (the plan language made the choice a settlor decision), others have let the claims proceed.
– Health plans and Pharmacy Benefits Managers (PBMs). A newer wave of cases allege that fiduciaries imprudently managed pharmacy benefit manager arrangements and overpaid for drugs. So far courts have largely dismissed these on Article III standing grounds, but plaintiffs keep refining their approach to find a way in, and incoming PBM price-transparency data will hand them more raw material to work with.
– Tobacco surcharges and wellness incentives. A separate line of cases challenges premium surcharges on tobacco users and wellness-program designs under ERISA and HIPAA nondiscrimination rules.

The common thread here is that same fiduciary-breach playbook built over twenty years in the $10-trillion-plus retirement market is being aimed at the $5-trillion-plus health market — which means welfare-plan fiduciaries who never thought of themselves as litigation targets now are.

Where AI comes in — for them, and for you

Here is our theory: the targeting that drives this litigation is already data-driven, and inexpensive AI lowers its cost further. Reading thousands of Form 5500 filings, flagging plans by size and fee pattern, and pulling matching language from plan documents is exactly the kind of work Ai can now do quickly and cheaply.

The practical implication is a lower economic floor for a viable case. Litigation that once made sense only against mega-plans has already crept toward plans in the $250-million-to-$750-million range; cheaper scanning pushes that floor down further. “We’re not big enough to bother with” is a weaker bet every year.

But the same capability cuts both ways, and that is the opportunity for plan fiduciaries. The AI tools a plaintiff’s firm uses to find a problem in your plan, are the same tools that you can use — to benchmark your fees, surface gaps in your governance file, and document the prudent process that defeats these claims at the only stage that matters. Finding and fixing your own issues before someone else finds them is now a realistic exercise.

One elated caution worth mentioning: if your benefits team is already using general-purpose AI — to interpret plan provisions, answer eligibility or COBRA questions, or triage testing issues — without verification, documentation, or a rule about when to escalate to counsel, that is not a productivity use of AI. It is an undocumented, unsupervised decision process sitting inside a regulated fiduciary function, and it is precisely the kind of thing that looks bad in discovery. AI in the benefits department is either part of your governance or part of your exposure. There is no neutral third option.

What to do now

1. Treat target-ability as the real risk, and assume you have it. If your plan is not large and your conduct is documentable, you are in range regardless of whether you have done anything wrong. Stop relying on size or a clean conscience as a defense.
2. Ensure your process is prudent and write it down. A functioning fiduciary committee, regular meetings with real minutes, periodic benchmarking and RFPs for major service providers, and a documented basis for each significant decision. After Cunningham, the contest moves into discovery — and a contemporaneous record of prudent process is more important than ever.
3. Audit the specific items plaintiffs are litigating right now. Benchmark recordkeeping and investment fees; review your forfeiture-allocation language and practice against your plan document; examine your PBM contract and the oversight you actually exercise over it; and confirm any tobacco surcharge or wellness incentive offers a compliant reasonable-alternative standard.
4. Govern your team’s AI use deliberately. Adopt an AI-use policy for the benefits function, require human verification of AI output, set clear criteria for when a question goes to counsel, and document vendor due diligence for any AI tool touching plan administration — so that a fiduciary committee can show it adopted AI prudently rather than drifted into it.
5. Consider using AI to find your own gaps first. The defensible move is to run the same kind of review against yourself that a plaintiff’s firm would, and to fix and document what you find — before the file is built by someone whose interests are adverse to yours.

The volume, the data-driven targeting, and the lowered pleading bar are real. The fear some of this generates is not the right response, and frankly not warranted — many of the newer theories are being dismissed, and there are signs of a regulatory appetite to curb litigation abuse. The right response is the unglamorous one: know where you are exposed, run a prudent process, and keep a record good enough to end a meritless case early. If you would like an assessment of where your practices fit, give us a call.

DOL Proposes New Safe Harbor for Investment Selection

The Department of Labor recently proposed a new regulation titled Fiduciary Duties in Selecting Designated Investment Alternatives, which would establish a six-factor safe harbor for prudent investment selection applicable to every investment option on a defined contribution plan’s menu, not just alternative assets. Fiduciaries who objectively, thoroughly, and analytically evaluate all six factors when selecting a designated investment alternative (DIA) would receive a presumption of prudence entitled to “significant deference” in litigation and DOL enforcement. This is one of the most consequential ERISA fiduciary investment proposals in decades. Although the rule is currently proposed, not final, and reliance is not yet authorized — the comment deadline is June 1, 2026 — Plan sponsors and investment committees should be ready to act as soon as the regulation is finalized. Specifically, at your next committee meeting be ready to review the six-factor framework, and begin aligning your practices when selecting investment options to add to the plan lineup, to take advantage of the safe harbor.

Background

Why have alternative investments been absent from most 401(k) plans? The short answer is litigation risk. The DOL’s preamble acknowledges that more than 500 ERISA class action suits have been filed since 2016, resulting in more than $1 billion in settlements since 2020. Alternative investments — private equity, private credit, real estate, digital assets, infrastructure, and commodities — are already standard investments in many defined benefit pension plans, where they are evaluated by sophisticated institutional fiduciaries. But in 401(k) and 403(b) plans, their features (higher fees, limited liquidity, complex valuation, non-public pricing) have made plan sponsors reluctant to include them, for fear of generating lawsuits that would be difficult and expensive to defend even if the investment was, in fact, prudent.

The current proposal follows directly from President Trump’s August 2025 Executive Order (E.O. 14330), which directed DOL to clarify ERISA fiduciary duties in connection with alternative assets and propose safe harbors to curb litigation that constrains fiduciary judgment. The DOL went further than the Executive Order required: rather than limiting the rule to alternative assets, DOL drafted an asset-neutral, principles-based regulation that applies to the selection of any DIA — mutual funds and index funds included. The DOL also simultaneously rescinded its August 2025 supplemental statement that had previously cautioned fiduciaries against private equity in typical 401(k) plans.

This proposed regulation supplements, but does not replace, the existing 1979 Investment Duties Regulation (29 C.F.R. § 2550.404a-1). Nothing in the proposal changes the ERISA duty of loyalty or the existing prohibited transaction rules.

What the Proposed Rule Would Do

The proposed regulation would add 29 C.F.R. § 2550.404a-6. It applies to participant-directed individual account plans (401(k), 403(b), and similar DC plans). It covers the selection of any DIA on the plan’s investment menu, expressly excluding brokerage windows. The rule confirms three foundational principles: (1) ERISA is grounded in process; (2) plan fiduciaries have maximum discretion and flexibility in selecting DIAs, including alternative assets; and (3) when decision-making follows a prudent process, arbiters of disputes — including courts — should defer to fiduciaries under a presumption of prudence. Investments that are illegal under federal law (e.g., investments in foreign adversaries or OFAC-sanctioned entities) are categorically excluded.

The Six-Factor Safe Harbor

Proposed Section 2550.404a-6(f) provides that a fiduciary who objectively, thoroughly, and analytically considers, and makes appropriate determinations on, each of the following six factors is presumed to have satisfied the duty of prudence under ERISA Section 404(a)(1)(B). The six factors are non-exhaustive — fiduciaries must still consider any other facts and circumstances they know or should know are relevant. The safe harbor is only as strong as the documentation supporting it.

Performance. Expected and historical performance must be assessed in light of the investment’s objectives, strategy, and intended role in the menu. Performance should not be evaluated in isolation; it must be considered in relation to participant outcomes over time. The proposal expressly states there is no presumption against new or innovative investment designs — but fiduciaries must seek the “best possible comparators” for novel strategies.
Fees and Expenses. Fiduciaries must consider a reasonable number of similar alternatives and determine that fees are appropriate, taking into account risk-adjusted expected returns net of fees and any other value the DIA brings to the plan. Fee review is not a standalone inquiry — it must be weighed against investment value.
Liquidity. The fiduciary must evaluate the liquidity profile of the DIA and confirm it is compatible with the plan’s participant liquidity needs (job changes, retirements, hardship withdrawals, plan loans). This factor will require heightened analysis for alternatives with redemption windows, gates, or lock-up periods. The proposal acknowledges that some illiquidity may be acceptable if the investment otherwise merits inclusion.
Valuation. Fiduciaries must understand how the investment is valued and how frequently. For publicly traded assets, valuation is generally deemed satisfied. For assets without a recognized public market, additional due diligence is required — including mutual funds with underlying non-public securities. Valuation methodology must be credible, well-governed, and free from conflicts of interest.
Meaningful Benchmark. Risk-adjusted returns must be compared to a meaningful benchmark — a comparator with similar mandate, objectives, strategy, and risk profile. This factor directly tracks the issue pending before the Supreme Court in Anderson v. Intel Corp. Investment Policy Committee, No. 25-498 (S. Ct., cert. granted Jan. 16, 2026), which will decide whether ERISA plaintiffs must plead a meaningful benchmark to survive a motion to dismiss. The Supreme Court’s decision (expected by mid-2027) may affect how this factor is interpreted in the final rule.
Complexity. Fiduciaries must determine they have the skills, knowledge, experience, and capacity to comprehend the DIA sufficiently to discharge their ERISA obligations — or must seek assistance from a qualified investment adviser or investment manager. Complexity is not disqualifying, but more complex investments require stronger diligence, more robust documentation, and may require engagement of specialized advisers.

Presumption of Prudence and Judicial Deference

The safe harbor creates a presumption that the fiduciary’s selection decision was reasonable and entitled to significant judicial deference, provided the six-factor analysis was conducted objectively, thoroughly, and analytically. DOL has deliberately framed the rule to reduce litigation risk by establishing that courts and other arbiters should defer to fiduciaries who follow the process — not second-guess the outcome. This is consistent with the current DOL’s enforcement posture under FAB 2026-01 (issued April 14, 2026), which also directs EBSA staff to concentrate enforcement on egregious misconduct rather than novel theories.

What the Rule Does Not Cover

The proposed rule addresses DIA selection only. DOL has separately indicated that guidance on the ongoing fiduciary duty to monitor DIAs after selection is forthcoming. Until that monitoring guidance is issued, fiduciaries should consider using the proposed six-factor framework to inform their ongoing monitoring practices as well. The rule also does not alter the duty of loyalty, ERISA’s prohibited transaction rules, or the ERISA Section 404(c) participant direction safe harbor.

Action Items for Plan Sponsors

Brief your investment committee. Investment committee members should understand that a major shift in the fiduciary investment selection framework is underway, that the rule intersects with pending Supreme Court litigation (Anderson v. Intel), and that the standards for what constitutes a defensible selection process are becoming more specific and more public. This is an appropriate topic for the next committee meeting.
Map your current investment review process to the six factors now. Even though the rule is not final, the six factors — performance, fees, liquidity, valuation, meaningful benchmark, and complexity — represent DOL’s clearest statement yet of what “acting prudently” looks like in investment selection. Begin assessing whether your current investment committee process and documentation capture each factor. This is a documentation hygiene exercise as much as a compliance exercise.
Do not rush to add alternative investments in reliance on this proposal. Reliance on the proposed rule is not yet authorized. Wait for the final rule before concluding that any alternative investment is safe to add under this framework
Be Ready to Review your existing lineup; Committee Charter, advisory agreements and processes once the rule is finalized.
Do not confuse this proposed rule with the Investment Advice Fiduciary Rule which was separately vacated and became effective April 20, 2026 under the restored 1975 five-part test. This proposed rule addresses DIA selection, not the definition of investment advice fiduciary status. Please see our alert regarding that issue here.

Supreme Court Raises Bar for Dismissing ERISA Prohibited Transaction Claims

The Supreme Court made it easier for plaintiffs to bring ERISA prohibited transaction claims last month when it unanimously adopted a lower pleading threshold for plaintiffs making such claims. Effectively, the Court’s decision in Cunningham v. Cornell University allows participant plaintiffs to more easily withstand a plan sponsor’s motion to dismiss, potentially opening the door to increased litigation targeting ERISA plans for common transactions with service providers. This is expected to result in more costly and time-consuming litigation, even in cases that do not ultimately have merit.

Key Holdings

The Court’s central holding establishes that plaintiffs alleging prohibited transactions under ERISA are not required to address statutory exemptions to such transactions in their complaints. Instead, the responsibility to invoke and ultimately prove these exemptions now rests squarely with plan sponsors and fiduciaries as affirmative defenses.

For example, under ERISA a plan sponsor who engages and pays service providers (such as recordkeepers and investment managers) engages in a prohibited transaction. Congress understandably also created an exemption to the prohibited transaction rules for payment of reasonable compensation to necessary service providers. The Court held that the structure of the statute, which places the prohibitions in one section and the exemptions in another, suggests that Congress intended for the exemptions to function as limitations on the prohibitions, rather than as integral elements of the prohibited transactions themselves. Thus, plaintiffs do not have an obligation to address the exemptions—rather, it is the defendant’s obligation to raise and demonstrate that an exemption applies.

Implications for Future Prohibited Transaction Litigation

This ruling may lead to an increase in ERISA litigation, as more claims survive initial dismissal motions, resulting in costly discovery and ongoing litigation, even in cases that appear to fall squarely under the ERISA prohibited transaction exemptions. As a result, more defendants may consider settling even meritless claims. The Court recognized these concerns but ultimately concluded that they could not override the clear statutory text and the established framework of ERISA. The Court suggested that trial courts utilize several existing procedural tools to mitigate the risk of meritless claims, but it remains to be seen how trial courts will approach the issue.

Practical Considerations for Plan Sponsors

Given the heightened litigation risk, there are several actions plan sponsors should take to anticipate potential challenges and ensure robust fiduciary practices are in place to withstand scrutiny.

1. Review Service Provider Agreements: Ensure that compensation paid to plan service providers from plan assets is reasonable. It is also advisable to maintain documentation demonstrating the necessity of the services provided and the reasonableness of the compensation paid for those services.

2. Document Fiduciary Processes: Maintain thorough records of decision-making processes related to plan management to provide evidence of prudent fiduciary conduct, particularly with respect to the selection, retention, and ongoing monitoring of service providers.

3. Stay Informed on Legal Developments: Keep abreast of evolving ERISA litigation trends and consider consulting legal counsel to assess and mitigate potential risks.

This decision underscores the importance of proactive fiduciary oversight and may signal increased judicial scrutiny of retirement plan management practices. If you would like to improve your fiduciary governance or assess how to better protect yourself from ERISA litigation, please do not hesitate to reach out to one of our experienced attorneys.