Notable case highlights and what to expect
It’s been an exciting year for 401(k) plans, with court decisions shaping what’s expected of plan sponsors and fiduciaries. Here are the key decisions and issues to watch going into 2026.
Did the Supreme Court make it easier for employees to bring ERISA lawsuits?
The Supreme Court opined on a highly technical ERISA procedural issue related to prohibited transaction claims in its Cunningham v. Cornell decision. While the ruling is consistent with practitioner expectations, there were initial concerns about whether it would prompt a potential increase in litigation since the decision makes it easier for employees to bring ERISA lawsuits. However, these concerns currently remain unfounded, as preliminary data does not show any spike in litigation activity following the decision.
How should fiduciaries consider ESG 401(k) investments?
In Spence v. American Airlines, Inc., the plaintiffs argued that the defendants breached the duties of prudence and loyalty by using an investment manager who pursued non-financial and nonpecuniary environmental, social, and governance (“ESG”) policy goals through proxy voting and shareholder activism. The court ruled against the plaintiffs on the breach of prudence claim since the defendants followed prevailing industry practices and engaged in a rigorous evaluation process.
However, the court found a breach of the duty of loyalty since American Airlines prioritized its and its investment manager’s corporate interests, including climate change and ESG factors, over the financial interests of plan participants. While the decision did not result in any monetary damages, the court granted equitable relief requiring American Airlines to follow certain conditions to ensure that climate change and ESG do not interfere with pecuniary factors.
What is a prudent process for investment decisions?
In its decision on an investment underperformance claim, the court provided a helpful roadmap for what constitutes a prudent process. The case, Waldner v. Natixis, involved allegations of imprudence and disloyalty for including underperforming proprietary funds on the plan’s 401(k) menu. While the decision in favor of the defendants recognized that there were a series of management missteps, the court held that these did not amount to a breach of prudence.
Instead, the court determined that the defendants followed a prudent process while making decisions involving the funds. The steps in this prudent process included using outside legal and financial expertise to evaluate funds, providing the plan’s committee with quarterly reports on the funds’ performance as well as training on ERISA fiduciary duties, and conducting regular plan committee meetings memorialized with minutes.
Why is it important to have meaningful benchmarks?
Similarly, in its decision in favor of the defendants in Anderson v. Intel Corporation Investment Policy Committee, the 9th Circuit emphasized that the duty of prudence is assessed based on processes, not outcomes. The court also found that the plaintiffs failed to provide a “meaningful benchmark” to compare with the Intel funds at issue. Instead, the benchmarks proposed to support the claim for breach of duty of prudence based on investment performance were not truly comparable, even though the plaintiffs had access to such benchmarks from Intel.
While the Intel decision has been appealed to the Supreme Court, it is consistent with other fiduciary breach cases dismissing claims for failure to provide a meaningful benchmark. For example, in Hanigan v. Bechtel Global, the plaintiffs alleged a breach of fiduciary duty by offering a managed account instead of target date funds (“TDFs”) as the plan’s qualified default investment alternative. In dismissing the case, the court found that TDFs were not a meaningful benchmark for managed accounts since they differed in overall strategies and levels of personalization.
Are all forfeitures created equally?
There has also been an uptick in litigation over the past two years involving the use of forfeitures in 401(k) plans. While a number of forfeiture cases alleging breach of fiduciary duties remain pending, recent decisions have largely favored plan sponsor defendants, with an overwhelming majority of cases ending in dismissals.
All eyes are currently on the 9th Circuit as it considers the issue in Hutchins v. HP, Inc. The Department of Labor has taken an interest in this case, submitting an amicus brief in favor of the plan sponsor defendants. The brief expresses the Department’s current views that the use of forfeitures to offset employer contributions is not, in itself, a fiduciary breach under ERISA. As the 9th circuit is the highest court to consider the issue to date, the Hutchins decision will have an impact on pending cases, particularly if the court adopts the Department’s pro-plan sponsor position.
What does healthcare have to do with an fiduciary duties and fee benchmarking?
Finally, while there have been some fiduciary breach lawsuits involving healthcare plans, much of this litigation has largely stalled due to procedural issues. However, the White House has expressed an interest in improving transparency around ERISA 408(b)(2) disclosures for compensation to healthcare plan service providers, including pharmacy benefit managers, so we expect to see further agency guidance and regulations addressing this issue soon. As such, it is crucial for plan sponsor fiduciaries to monitor healthcare plan service providers with the same prudence and process used for retirement plan service providers.
How should we stay up-to-date?
As we have seen in the courts over the past year, things are active and evolving in the world of 401(k) plan fiduciary responsibilities. We should receive clarity and finality on many of these pending fiduciary issues in 2026. Stay tuned!
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This is a special edition written by The Wagner Law Group.
Established in 1996, the attorneys at The Wagner Law Group provide boutique-style services in ERISA, PBGC, employment law, and more for clients nationwide. www.wagnerlawgroup.com
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