Reflecting on 2025: A Burden on Plan Sponsors

Written by Fred Reish

As I look back at 2025, in my view the most significant event for sponsors of retirement plans is the Supreme Court’s decision in Cunningham v. Cornell University.  That decision placed new burden on plan sponsors that has been underreported.

This article discusses the law and the decision, and what plan sponsors should be doing as a result.

The Law and the Decision

Bear with me as I discuss the Court’s opinion…the law is counterintuitive.

The fiduciary rule is straightforward.  Plan fiduciaries must act prudently (that is, with care, skill, diligence and prudence) and in the best interest of the participants. That’s in section 404(a) of ERISA.

By the way, for the rest of the article, I use “plan committee” or “committee members” to refer to plan sponsor fiduciaries—since that’s how most plan sponsors structure their plan responsibilities.

When selecting plan providers, such as recordkeepers, a plan committee must make informed and prudent decisions.  Does the plan need the services; are the services of good quality; is the cost reasonable?

However, there is another set of requirements in ERISA called the prohibited transaction rules. Surprisingly, and counterintuitively, these rules—found in section 406(b) of ERISA—prohibit plan committees from hiring and paying service providers, including recordkeepers.

How is that possible?

Fortunately, there is another section of ERISA, 408(b)(2), which creates a “conditional” exemption (or exception) to that prohibition.  But, as I said, it is conditional.  What are the conditions?

Generally stated, the exemption says that plan committees can only enter into agreements with service providers if the arrangements are reasonable and the compensation paid by the plan is reasonable.

The issue before the Supreme Court was whether plaintiffs need to prove that the arrangements and compensation were not reasonable or whether committees have to prove that they were reasonable.

The Supreme Court held that the burden of proof is on plan committees.

The Burden on Plan Committees

Because of the decision, committee members now need to be able to prove that they vetted the arrangement (e.g., the contracts and services) and the compensation of the plan’s service providers.

I think it goes without saying that written proof usually carries more weight than recollections and undocumented discussions.  As a result, plan committees should consider, at reasonable intervals, obtaining written evidence of compliance. Perhaps the greatest challenge is to prove that the compensation paid to a service provider, such as a recordkeeper, is reasonable.  The most obvious ways to do that are through a credible benchmarking report or through RFPs.  Because of the time and effort required by RFPS and reviewing the responses, the most common approach is to obtain and review benchmarking reports.

If the benchmarking service reviews and reports on an adequate number of similarly situated plans, and if the report shows that the compensation paid by the plan is reasonable, the job will be done, until and unless there is a change that could affect the market pricing of the services for the plan.  To cover that, some plans benchmark every year, others every 2 or 3 years.

However, if the report shows that the compensation of a service provider is unreasonably high, committee members have a duty to address the issue, for example, to negotiate lower fees.

In either case, it can be helpful for the process, the documentation, and the committee’s analysis to be described in minutes of a committee meeting.

If a plan committee takes these steps, it will be in a good position to prove that it acted prudently and that it satisfied the conditions of the exemption.