Bill seeks higher bar for ERISA prohibited transaction claims
Bill would override recent Supreme Court decision
Excessive fee lawsuits targeting ERISA plans often include prohibited transaction claims alongside allegations of fiduciary breach. ERISA’s prohibited transaction rules supplement fiduciaries’ general duties of prudence and loyalty by categorically barring transactions that Congress considers likely to injure plans, including contracting for plan-related services. ERISA also includes a series of exemptions that enable fiduciaries to engage in transactions that ERISA otherwise prohibits if they meet conditions designed to protect the plan and its participants. One of these exemptions is found in Section 408(b)(2), which allows fiduciaries to arrange for services necessary to the plan’s operation, as long as the plan pays no more than reasonable compensation.
In the Cornell case, the Court addressed the pleading standard for ERISA prohibited transaction claims. The Court ruled that to survive a motion to dismiss, plaintiffs need only allege that fiduciaries caused the plan to engage in a prohibited transaction. The Court explained that ERISA’s exemptions are affirmative defenses that defendants raise in response to a prohibited transaction claim — not something plaintiffs need to preemptively negate in their pleadings. Though recognizing concerns that the ruling would increase fiduciaries’ litigation risk and defense costs by allowing plaintiffs to more easily proceed to the discovery phase, the Court explained that this is the only possible interpretation of ERISA’s prohibited transaction and exemption provisions as Congress drafted them.
The bill would override the Court’s ruling by amending ERISA to specify a heightened pleading standard for certain prohibited transaction claims like those at issue in Cornell. Plaintiffs claiming that a plan fiduciary’s retention of a service provider is a prohibited transaction would have to plausibly allege that the transaction isn’t exempt under Section 408(b)(2), including that the service provider’s compensation is unreasonable. A similar heightened pleading standard would also apply to plaintiffs alleging prohibited transactions in connection with a plan’s purchase or sale of employer securities (i.e., plaintiffs would have to plausibly allege the transaction isn’t exempt under ERISA Section 408(e)’s exemption for qualifying employer securities).
In addition, plaintiffs whose prohibited transaction claims survive a motion to dismiss would have the burden of proving that fiduciaries didn’t satisfy the prohibited transaction exemption requirements in ERISA Section 408(b)(2) or 408(e), as applicable, to prevail on the merits.
The bill would also automatically stay discovery and other proceedings in all ERISA lawsuits — including those involving fiduciary breach allegations — while a motion to dismiss is pending. However, the Court could allow “particularized discovery” if necessary to preserve evidence or prevent undue prejudice to one of the parties.
Plan sponsor groups voice support at House hearing
The legislation and prevalence of retirement plan litigation in recent years were the focus of a Dec. 2, 2025, hearing held by the House Committee on Education and Workforce’s Subcommittee on Health, Employment, Labor and Pensions titled “Pension Predators: Stopping Class Action Abuse Against Workers’ Retirement.”
Lawmakers’ views at the hearing generally split along party lines. Many Republicans asserted that ERISA class action lawsuits have become a “predatory” business model for plaintiffs’ lawyers, harming employers and reducing workers’ benefits. However, several Democrats argued that these lawsuits are necessary to hold plan fiduciaries accountable and that plan sponsors’ contention that the Cornell decision will encourage more meritless claims is overblown.
The ERISA Litigation Reform Act “is essential as a first step in addressing the crisis” of surging litigation against plans, testified Lynn Dudley, senior vice president for Global Retirement & Compensation Policy at the American Benefits Council. “Right now, the top retirement policy issue for our plan sponsor members is the tidal wave of inappropriate and … frivolous litigation that is draining resources away from benefits, inhibiting innovation, preventing many new products and services from being offered and benefiting only plaintiffs' lawyers,” she said.
“The barely veiled secret is that these suits are designed to generate a quick settlement, often with merely token recoveries for plan participants,” Glenn Butash, chair of the ERISA Industry Committee’s Legal Center, told lawmakers. “If there's no quick settlement and the case survives a motion to dismiss, discovery and litigation costs can run into the millions of dollars. This has real consequences.”
William Alvarado Rivera, senior vice president of litigation at the AARP Foundation, countered that “far from being frivolous, these cases often uncover real harm leading to reforms like fee reductions and improved investment menus.” He argued that workers are pursuing these cases “to recover money that was siphoned away by those they entrusted to look after it.”
The legislation has been referred to the House Committee on Education and Workforce, which has jurisdiction over ERISA, as well as the Committee on the Judiciary. Backers of the bill are working to secure more House cosponsors and seek the introduction of companion legislation in the Senate.
Administration also aims to curb ERISA litigation
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Executive order on alternative assets.An Aug. 7, 2025, executive order directs DOL to issue guidance encouraging defined contribution (DC) plan fiduciaries to offer participants greater exposure to private equity, digital currencies and other “alternative assets” by Feb. 2. The order specifically instructs DOL to prioritize actions that will deter private plaintiffs from bringing ERISA lawsuits.
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Supreme Court advocacy.
In addition, the Solicitor General, with input from DOL, recently filed amicus briefs urging the Court to review lower court decisions in two ERISA fiduciary breach lawsuits and issue sponsor-friendly rulings:
- In Pizarro v. The Home Depot, Inc., the Solicitor General has asked the Court to affirm the lower court’s ruling that plaintiffs have the burden of proving an alleged fiduciary breach caused damages. Federal appeals courts are currently divided on this issue, with some maintaining that the burden shifts to defendants to prove the breach didn’t cause losses — a more plaintiff-friendly position DOL has previously endorsed prior to the current Trump administration.
- In Parker-Hannifin Corp. v. Johnson, the Solicitor General is urging the Court to clarify the pleading standard for fiduciary breach allegations involving the underperformance of DC plan investments. According to the Solicitor General, the Court should confirm that plaintiffs must plausibly allege a fund’s underperformance relative to a “meaningful benchmark” with similar investment strategies, objectives and risk profiles in order to survive a motion to dismiss.
The Solicitor General’s recommendation to accept a case for review often carries significant weight. Whether the Supreme Court will ultimately take up either of these cases and issue definitive rulings that favor sponsors remains to be seen.
Related resources
Non-Mercer resources
- ERISA Litigation Reform Act (Congress, Nov. 24, 2025)
- Congressman Fine introduces ERISA Litigation Reform Act to strengthen legal standards and protect retirement plans (Congress, Nov. 24, 2025)
- Hearing Recap: ‘Pension Predators: Stopping Class Action Abuse Against Workers’ Retirement’ (House Committee on Education and Workforce Subcommittee on Health, Employment, Labor and Pensions, Dec. 2, 2025)
Mercer Law & Policy resources
- DC plans await DOL’s Trump-ordered alternative asset guidance (Aug. 25, 2025)
- High court sets low bar for ERISA prohibited transaction claims (April 30, 2025)