Employment Litigation · Primary-source case analysis

Cunningham: ERISA Transaction Exemptions Are Affirmative Defenses

By Aneeta Mishra and Timothy Chan

Published September 8, 2026 · Updated October 18, 2026

Decision: Cunningham v. Cornell Univ., 604 U.S. 693 (2025).

Paying a retirement plan’s service provider can trigger ERISA’s prohibited-transaction rules even when the service is ordinary and necessary. Cunningham v. Cornell University, 604 U.S. 693 (2025), assigns the exemption burden to the fiduciary: Participants need not disprove every exemption in their complaint. But a sufficient complaint does not establish an excessive fee or guarantee discovery without further screening. Cunningham, opinion pages 6–8, 14–15.

Section 1106 supplies the claim elements

A plaintiff must plausibly allege that a fiduciary caused a plan to engage in a transaction the fiduciary knew or should have known furnished goods, services, or facilities between the plan and a party in interest.

Section 1108 is structurally separate

Congress placed the prohibitions in section 1106 and the exemptions in section 1108. The Court treated that structure as the ordinary form of an affirmative defense. The opening phrase “except as provided in section 1108” did not silently make plaintiffs negate all 21 statutory exemptions and hundreds of regulatory exemptions before learning which defense the fiduciary would invoke. Cunningham, opinion pages 7–12.

The fiduciary bears the exemption burden

A fiduciary relying on necessary services and reasonable compensation must plead and prove the exemption. If that showing succeeds, the prohibited-transaction claim fails; the decision does not make necessary plan administration unlawful regardless of its terms. Conversely, a participant still must plausibly allege the transaction, requisite knowledge and party-in-interest relationship in section 1106(a)(1)(C). Cunningham, opinion pages 6–8.

Courts retain screening tools

The unanimous Court reversed and remanded without finding the fees unreasonable. It described several distinct safeguards: A concrete injury remains necessary for standing; a court may order a Rule 7 reply after an exemption is raised in the answer; discovery may be expedited or limited; and Rule 11 or discretionary fee shifting may apply in the circumstances described. These are court-controlled tools, not automatic sanctions against a participant whose claim loses. Justice Alito’s concurrence urged their use while joining the holding. Cunningham, opinion pages 14–15; Alito concurrence, pages 1–3.

Key takeaways

• Plead the three elements in section 1106(a)(1)(C).
• Treat section 1108 exemptions as defenses rather than negative claim elements.
• Document necessity and reasonable compensation when relying on the service-provider exemption.
• Separate pleading sufficiency from standing and ultimate liability.