ERISA: Legal Framework and Recent Supreme Court Litigation

ERISA: Legal Framework and Recent Supreme

Court Litigation

March 21, 2025

Congressional Research Service

https://crsreports.congress.gov

R48470

SUMMARY

ERISA: Legal Framework and Recent Supreme

Court Litigation

R48470

March 21, 2025

Jennifer A. Staman

Legislative Attorney

As part of federal efforts to protect retirement income security and promote access to affordable

health care for working Americans, retirees, and their families, private-sector employee benefit

plans receive substantial congressional attention. The Employee Retirement Income Security Act

of 1974 (ERISA, or Act) is a key federal law that regulates the retirement, health, and other

benefits that private-sector employees receive, as well as the responsibilities of employers and

other parties involved in providing these benefits. Recent reports estimate that there are over 4.1 million ERISA plans that

cover roughly 156 million individuals and include an estimated $14 trillion in plan assets.

While Congress enacted ERISA primarily to regulate pension plans, ERISA also regulates employee welfare benefit plans

offered by an employer to provide medical, surgical, and other benefits. As part of the Act, covered plans must meet certain

standards set out in Title I of ERISA, which is largely administered by the Department of Labor. Under this Title, ERISAgoverned plans (or, in some cases, plan sponsors or administrators) must meet various requirements relating to, among other

things, reporting and disclosure, participation, benefit accrual and vesting for pension plans, plan funding requirements for

applicable pension plans, and fiduciary requirements. The Act also contains an enforcement scheme that authorizes

participants, beneficiaries, and other parties to bring certain civil actions to enforce provisions of the Act.

To safeguard ERISA plan participants’ interests in their benefits, ERISA imposes standards of conduct for plan fiduciaries,

persons who are generally responsible for the management and operation of employee benefit plans. While ERISA does not

catalog every duty of a plan fiduciary, the Act establishes four basic standards of conduct: a duty of loyalty, a duty of

prudence, a duty to diversify investments for applicable plans, and a duty to follow plan documents to the extent they comply

with ERISA. In addition to requiring plan fiduciaries to adhere to standards of conduct, ERISA prohibits fiduciaries from

causing an employee benefit plan to engage in transactions considered likely to injure an ERISA plan. The Act generally bars

certain types of transactions between a plan and a “party in interest” (e.g., a plan service provider, or employees covered by

the plan), unless an exemption applies. Additionally, to prevent self-dealing, ERISA prohibits specified types of transactions

between a plan and a plan fiduciary. Exemptions to the prohibited transaction requirements permit, among other things,

reasonable compensation arrangements with parties in interest for services needed for plan establishment or operations.

Another key feature of Title I of ERISA is its express preemption clause. As the Supreme Court has described, Congress

provided for ERISA preemption in order to “avoid a multiplicity of regulation in order to permit the nationally uniform

administration of employee benefit plans.” Section 514 of the Act preempts “any and all State laws insofar as they may now

or hereafter relate to any employee benefit plan . . . .” In numerous opinions, the Court has interpreted the “relate to”

language as applying to any state law that “has a connection with or reference to such a plan.” In conjunction with these two

categories articulated by the Supreme Court, ERISA preemption analysis typically examines whether a state law interferes

with ERISA’s goal of uniform national standards for covered employee benefit plans.

Litigating parties frequently seek answers from the courts regarding a wide array of ERISA-related legal questions, including

those related to the precise responsibilities of plan fiduciaries with respect to ERISA plans, and the degree to which ERISA

supplants state law. On January 22, 2025, the Supreme Court heard oral arguments in Cunningham v. Cornell, a lawsuit that

generally concerns the necessary elements of a claim for alleging a prohibited transaction violation against plan fiduciaries.

The Court is also considering whether to grant review in Mulready v. PCMA, a case about federal preemption of state laws

governing pharmacy benefit manager (PBM) practices.

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ERISA: Legal Framework and Recent Supreme Court Litigation

Contents

Background on ERISA .................................................................................................................... 2

Fiduciary Responsibility Requirements .......................................................................................... 4

Standards of Conduct ................................................................................................................ 5

Prohibited Transactions ............................................................................................................. 6

Express Preemption of State Law.................................................................................................... 7

ERISA and Recent Supreme Court Litigation ............................................................................... 10

Requirements for Viable Prohibited Transaction Claims Against Plan Fiduciaries:

Cunningham v. Cornell University ....................................................................................... 10

State PBM Laws and ERISA Preemption: Mulready v. Pharmaceutical Care

Management Association (PCMA) ....................................................................................... 14

Contacts

Author Information........................................................................................................................ 16

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ERISA: Legal Framework and Recent Supreme Court Litigation

F

or decades, Members of Congress have engaged in efforts to safeguard retirement income

security and ensure access to affordable health coverage for working Americans, retirees,

and their families.1 Private-sector employers play a key role in these efforts, largely through

a federally regulated benefits system governed by the Employee Retirement Income Security Act

of 1974 (ERISA, or Act).2 ERISA establishes a comprehensive federal regulatory regime for

private-sector employee benefit plans. While Congress enacted ERISA primarily to regulate

pension plans,3 ERISA also regulates employee welfare benefit plans offered by an employer to

provide medical, surgical, and other benefits.4 Department of Labor reports estimate that ERISA

covers approximately 801,000 retirement plans, 2.6 million health plans, and 514,000 other

welfare benefit plans.5 These plans cover about 156 million workers and their beneficiaries and

include an estimated $14 trillion in plan assets.6

Enacted in 1974, ERISA’s central goal is to “protect . . . the interests of participants and . . .

beneficiaries” of employee welfare and pension benefit plans and to assure that participants

receive promised benefits from their employers.7 To this end, ERISA sets “minimum standards”

designed to ensure an “equitable character of [employee benefit] plans and their financial

soundness.”8 ERISA does not require employers to offer employee benefits, but those that do

must comply with the Act’s requirements.9 Another stated purpose of the Act is to “encourage the

maintenance and growth” of employee benefit plans, as implemented through a uniform, federal

regulatory regime.10 In enacting ERISA, Congress sought to strike an appropriate balance

between these objectives, as reflected in the Act’s regulatory scheme, as well as in voluminous

ERISA litigation.11

1 See generally Phyllis C. Borzi & Ali Khawar, Introduction to the Fourth Edition: A System in Crisis? Employee

Benefits in the United States: A Look Toward the Future, of MARY ELLEN SIGNORILLE ET AL., EMPLOYEE BENEFITS LAW

(4th ed. 2020).

2 Pub. L. No. 93-406, 88 Stat. 829 (1974) (codified as amended at 29 U.S.C. §§ 1001–1461).

3 This report uses the terms pension plan and retirement plan synonymously.

4 ERISA considers a number of nonpension benefit programs offered by an employer to be “employee welfare benefit

plans.” For example, life insurance plans, and plans that provide dependent care assistance, educational assistance, or

legal assistance, can be welfare benefit plans. See id. § 1002(1).

5 DEP’T OF LABOR, PRIVATE PENSION PLAN BULLETIN, ABSTRACT OF 2022 FORM 5500 ANNUAL REPORTS 2 (2024),

https://www.dol.gov/sites/dolgov/files/ebsa/researchers/statistics/retirement-bulletins/private-pension-plan-bulletinsabstract-2022.pdf; DEP’T OF LABOR, FACT SHEET: EBSA RESTORES OVER $1.4 BILLION TO EMPLOYEE BENEFIT PLANS,

PARTICIPANTS AND BENEFICIARIES 1 (2024), https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/ouractivities/resource-center/fact-sheets/ebsa-monetary-results-2024.pdf.

6 See sources cited supra note 5.

7 See 29 U.S.C. § 1001.

8 See id.

9 See, e.g., Cent. Laborers’ Pension Fund v. Heinz, 541 U.S. 739, 743 (2004) (“Nothing in ERISA requires employers

to establish employee benefits plans. Nor does ERISA mandate what kind of benefits employers must provide if they

choose to have such a plan. ERISA does, however, seek to ensure that employees will not be left emptyhanded once

employers have guaranteed them certain benefits.” (quoting Lockheed Corp. v. Spink, 517 U.S. 882, 887 (1996)).

10 See, e.g., 29 U.S.C. § 1001b(c)(2); N.Y. State Conf. of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514

U.S. 645, 656 (1995) (addressing Congress’s intent to establish the regulation of employee welfare benefit plans “as

exclusively a federal concern.”).

11 See, e.g., Conkright v. Frommert, 559 U.S. 506, 516–17 (2010) (“Congress enacted ERISA to ensure that employees

would receive the benefits they had earned, but Congress did not require employers to establish benefit plans in the first

place. We have therefore recognized that ERISA represents a ‘“careful balancing” between ensuring fair and prompt

enforcement of rights under a plan and the encouragement of the creation of such plans.’ Congress sought ‘to create a

system that is [not] so complex that administrative costs, or litigation expenses, unduly discourage employers from

offering [ERISA] plans in the first place.’” (citations omitted)).

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This report first provides a brief overview of ERISA’s basic statutory framework and application.

It then addresses two core components of the statute that affect oversight and administration of

employee benefit plans and are frequently at issue in legal challenges: (1) the Act’s fiduciary

responsibility requirements, and (2) its express preemption clause. Finally, this report concludes

with discussion of two lawsuits that involve these core components and are on the Supreme

Court’s docket in the October 2024 term, Cunningham v. Cornell University (petition for review

granted) and Mulready v. PCMA (petition for review pending).12

Background on ERISA

Following some well-publicized pension defaults, Congress enacted ERISA primarily to regulate

retirement benefits.13 The Act contains four titles. Title I sets out employee benefit plan standards

that are administered by the Department of Labor.14 Title II of ERISA amends the Internal

Revenue Code and is administered by the Internal Revenue Service. This title contains

requirements that employer-sponsored retirement plans and other arrangements must meet to

qualify for federal income tax deferrals and deductions.15 ERISA Title III covers issues such as

the coordination of jurisdictional, administrative, and enforcement matters between the

Departments of Labor and the Treasury.16 Title IV of ERISA addresses pension plan termination

and establishes the Pension Benefit Guaranty Corporation (PBGC) as a government-owned

corporation to insure the retirement income of participants and beneficiaries in applicable plans.17

This report focuses on key provisions in Title I of the Act.

Although the Act governs a variety of employment-based benefit programs that provide deferred

or retirement income to participants, the Act largely regulates two main types of pension plans:

defined benefit plans and defined contribution plans.18 In a defined benefit plan, an employee is

promised a specified future benefit (traditionally, an annuity beginning at retirement) based on

factors such as the employee’s salary, age, and years of service.19 ERISA generally requires the

employer to fund a defined benefit plan adequately, invest plan assets and bear the risk for such

investments, and compensate for any shortfalls.20 Should a defined benefit plan terminate (or, in

the case of a multiemployer plan, become insolvent) without sufficient funding to pay vested

12 See Petition for Writ of Certiorari, Glen Mulready v. Pharm. Care Mgmt. Assoc., No 23-1213 (U.S. 2024); Petition

for a Writ of Certiorari, Cunningham v. Cornell Univ., No. 23-1007 (U.S. April 12, 2024).

13 See, e.g., James A. Wooten, “The Most Glorious Story of Failure in the Business”: The Studebaker-Packard

Corporation and the Origins of ERISA, 49 BUFFALO L. REV. 683 (2001) (discussing the Studebaker automobile plant

shutdown as the “focusing event” for federal pension reform); Phyllis C. Borzi, Symposium: On the Cusp: Insight and

Perspectives on Health Reform: Part II: Private and Public Health Coverage: How Should They Change?: There’s

Private and Then There’s “Private”: ERISA, Its Impact, and Options for Reform, 36 J.L. MED. & ETHICS 660 (2008)

(discussion of the reasoning behind the disparity between regulation of pension and welfare benefit plans under

ERISA).

14 29 U.S.C. §§ 1001–1193c.

15 See, e.g., 26 U.S.C. §§ 410–415.

16 29 U.S.C. §§ 1201–1231.

17 Id. §§ 1301–1311, 1321–1323, 1341–1350, 1361–1371, 1381–1405, 1411–1415, 1426–1432, 1441, 1451–1453.

18 Types of Retirement Plans, U.S. DEP’T OF LABOR, https://www.dol.gov/general/topic/retirement/typesofplans.

19 See 29 U.S.C. § 1002(35); Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 439 (1999) (“A defined benefit plan, on

the other hand, consists of a general pool of assets rather than individual dedicated accounts. Such a plan, as its name

implies, is one where the employee, upon retirement, is entitled to a fixed periodic payment.” (citations omitted)).

20 See 29 U.S.C. §§ 1082–1085a.

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pension benefits, the PBGC pays certain guaranteed benefits to plan participants, subject to

statutory limits.21

By contrast, a defined contribution plan (e.g., a 401(k) plan) is a retirement plan that provides

each participant with an individual account that accrues benefits based on employer and

employee contributions, as well as any income, expenses, and investment gains or losses to the

account.22 The employee bears the investment risk, and the account value may fluctuate. Defined

contribution plan benefits are not PBGC-insured.23 Over the past few decades, there has been a

steady decline in the number of defined benefit pension plans, while the number of defined

contribution plans has increased.24 According to 2022 data from the Department of Labor, there

are approximately 30 million participants in defined benefit plans, and more than 121 million

participants in defined contribution plans.25

As noted, ERISA also regulates welfare benefit plans offered by an employer, including those

plans that provide health benefits.26 ERISA applies to health coverage offered through health

insurance companies or other arrangements (e.g., self-funded plans).27 Health plans, like other

welfare benefit plans governed by ERISA, must comply with various standards, including plan

fiduciary standards28 and reporting and disclosure requirements.29 Additionally, since ERISA’s

enactment, Congress has taken several steps to regulate the nature and content of health plans

more comprehensively. The most substantial changes were included as part of the Patient

Protection and Affordable Care Act (ACA), which, among many other things, greatly expanded

the scope of federal regulation over private health insurance coverage, including health benefits

provided through employment-based group health plans.30 These reforms include a required

extension of dependent coverage, if such coverage is offered, to age twenty-six; a bar on lifetime

and certain annual benefit limits; coverage of certain essential health benefits; a prohibition on

health insurance rescissions (except under limited circumstances); and coverage of preventive

health services without cost sharing.31 Congress has passed more recent legislation regulating

21 See id. §§ 1301–1461.

22 See id. § 1002(34).

23 See, e.g., id. § 1301(15) (defining PBGC-covered “single employer plans” as those that are defined benefit plans).

24 DEP’T OF LABOR, PRIVATE PENSION PLAN BULLETIN HISTORICAL TABLES AND GRAPHS 1975–2022, at 5 (2024),

https://www.dol.gov/sites/dolgov/files/EBSA/researchers/statistics/retirement-bulletins/pension-plan-historicaltables.pdf.

25 Id.

26 29 U.S.C. § 1002(1).

27 Under self-funded (or self-insured) plans, instead of using health insurance (i.e., where an employer pays a premium

to an insurer to cover the claims of plan participants), an employer acts as the insurer itself and pays the health care

claims of the plan participants. While self-insured plans may use an insurance company or other third party to

administer the plan, the employer bears the risk associated with offering health benefits. See Self-insured Plan,

HEALTHCARE.GOV, https://www.healthcare.gov/glossary/self-insured-plan/ (last visited March 14, 2025).

28 29 U.S.C. §§ 1101–1114.

29 Id. §§ 1021–1032.

30 Pub. L. No. 111-148, 124 Stat. 119 (2010). ACA was amended by the Health Care Education and Reconciliation Act

of 2010, Pub. L. No. 111-152, 124 Stat. 1029.

31 These health insurance requirements were added to the Public Health Service Act and incorporated by reference into

ERISA. See ACA, Pub. L. No. 111-148, tit. I, § 1563(e)–(f), 124 Stat. 119, (2010). For a discussion of these ACA

requirements, see CRS Report R45146, Federal Requirements on Private Health Insurance Plans, coordinated by Ryan

J. Rosso (2023).

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private health insurance plans including ERISA plans. The Consolidated Appropriations Act,

2021, for instance, established new restrictions on surprise billing practices.32

Under Title I of the Act, ERISA-governed plans (or, in some cases, plan sponsors or

administrators) must meet a variety of requirements. Among other provisions, the Act requires

plans to disclose certain information to plan participants about their benefits, and plan sponsors

must also report financial and other information about the plan to the Department of Labor.33 The

Act also establishes participation standards for pension plans, which include certain minimum age

and service requirements on covered plans, as well as detailed vesting standards, which specify

the rate at which a participant’s accrued benefits in a pension plan must become nonforfeitable.34

Additionally, applicable pension plans, particularly defined benefit plans,35 must satisfy funding

requirements to help ensure that sufficient assets are available to pay promised benefits.36

To safeguard ERISA plan participants’ interests in their benefits, the Act also aims to “provid[e]

for appropriate remedies, sanctions, and ready access to the Federal courts.”37 As a central part of

ERISA’s enforcement scheme, the Act authorizes participants, beneficiaries, or, in some cases, a

plan fiduciary or the Secretary of Labor, to bring certain civil actions to enforce provisions of the

Act.38 Among other claims, ERISA authorizes a plan participant or a beneficiary to bring an

action against the plan to recover benefits, or enforce or clarify a right to future benefits under the

plan.39 ERISA also permits participants, beneficiaries, fiduciaries, and the Secretary of Labor to

sue to enjoin any act or practice that violates ERISA or a plan’s terms, or obtain “other

appropriate equitable relief” due to an ERISA violation.40 In addition to obtaining relief in federal

court, ERISA authorizes the Secretary of Labor to assess and collect civil monetary penalties

through administrative proceedings for certain violations, such as failure to provide certain

required reports to the Secretary of Labor.41

Fiduciary Responsibility Requirements

Title I of ERISA imposes a number of obligations on plan fiduciaries.42 A person is a plan

“fiduciary” under ERISA if the person (1) exercises any discretionary authority or control with

respect to the management of the plan or exercises any authority with respect to the management

32 For background on federal surprise billing requirements, see CRS Report R46856, Surprise Billing in Private Health

Insurance: Overview of Federal Consumer Protections and Payment for Out-of-Network Services, by Ryan J. Rosso,

Noah D. Isserman, and Wen W. Shen (2021).

33 Id. §§ 1021–1032.

34 See, e.g., id. § 1051–1061. In DiGiacomo v. Teamsters Pension Tr. Fund, 420 F.3d 220, 229 (3d Cir. 2005), Justice

Alito, in his former position as a judge on the U.S. Court of Appeals for the Third Circuit, stated that accrued benefits,

“are like chalk marks beside the employee’s name. They are conditional rights that do not become ‘irrevocabl[e]’ until

they vest.”

35 See discussion infra note 19.

36 29 U.S.C. §§ 1081–1085a.

37 29 U.S.C. § 1001(b).

38 See, e.g., id. § 1132.

39 Id. § 1132(a)(1)(B).

40 Id. § 1132(a)(3), (a)(5).

41 See, e.g., id. § 1132(c). See also FACT SHEET: ADJUSTING ERISA CIVIL MONETARY PENALTIES FOR INFLATION,

https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/adjusting-erisa-civil-monetarypenalties-for-inflation (last visited March 14, 2025).

42 See generally Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, n.8 (1985) (“The floor debate . . . [over ERISA]

reveals that the crucible of congressional concern was misuse and mismanagement of plan assets by plan administrators

and that ERISA was designed to prevent these abuses in the future.”).

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or disposition of plan assets; (2) renders investment advice for a fee or other compensation with

respect to any plan asset or has any authority or responsibility to do so; or (3) has any

discretionary responsibility in the administration of the plan.43 ERISA-governed plans generally

must have one or more fiduciaries named in plan documents.44 However, other persons may also

be considered ERISA fiduciaries based on their functional role with respect to a particular plan.45

Federal appellate courts commonly refer to ERISA’s fiduciary duties as the “highest known to the

law.”46 This report highlights two central parts of ERISA’s fiduciary requirements in Part 4 of

Title I of the Act: standards of conduct and prohibited transactions.

Standards of Conduct

While ERISA does not catalog every duty of a plan fiduciary, the Act establishes four basic

standards of conduct:

1. Duty of Loyalty. Plan fiduciaries must discharge their duties “solely in the

interest of the participants and beneficiaries” and for the “exclusive purpose” of

providing benefits to participants and beneficiaries and defraying reasonable

expenses of administering the plan.47 This duty prohibits fiduciaries from

engaging in investment-related activities or other plan-related transactions for the

purpose of promoting the fiduciary’s own self-interest over the interests of plan

participants and beneficiaries.48

2. Duty of Prudence. ERISA requires fiduciaries to act “with the care, skill,

prudence, and diligence under the circumstances then prevailing that a prudent

man . . . would use in the conduct of an enterprise of a like character and with

like aims.”49 As the Supreme Court has noted, “[b]ecause the content of the duty

of prudence turns on ‘the circumstances . . . prevailing’ at the time the fiduciary

acts, the appropriate inquiry will necessarily be context specific.”50 Litigation

over the duty of prudence frequently arises in the context of plan investments.51

In this context, the Supreme Court has held that duty of prudence applies not

43 29 U.S.C. § 1002(21).

44 29 U.S.C. § 1102(a)(2).

45 See, e.g., Mertens v. Hewitt Assocs., 508 U.S. 248, 262 (1993) (“ERISA . . . defines ‘fiduciary’ not in terms of

formal trusteeship, but in functional terms of control and authority over the plan . . . thus expanding the universe of

persons subject to fiduciary duties.”).

46 See, e.g., Appvion, Inc. Ret. Sav. & Emp. Stock Ownership Plan v. Buth, 99 F.4th 928 (7th Cir. 2024) (quoting

Donovan v. Bierwirth, 680 F.2d 263, 272 n.8 (2d Cir. 1982), cert. denied, 459 U.S. 1069 (1982)).

47 29 U.S.C. § 1104(a)(1)(A).

48

See id. Along with ERISA’s duty of loyalty is an “exclusive purpose” requirement, which states that “the assets of a

plan shall never inure to the benefit of any employer and shall be held for the exclusive purposes of providing benefits

to participants in the plan and their beneficiaries and defraying reasonable expenses of administering the plan. Id.

§ 1103(c)(1).

49 Id. § 1104(a)(1)(B).

50 Hughes v. Northwestern, 595 U.S. 170, 177 (2022). See also, e.g., Stegemann v. Gannett Co., 970 F.3d 465, 474 (4th

Cir. 2020) (To enforce the duty of prudence, “‘the court focuses not only on the merits of a transaction, but also on the

thoroughness of the investigation into the merits of that transaction.’ Put another way, where a plaintiff alleges an

imprudent investment decision, ‘courts measure the “prudence” requirement by focusing on a fiduciary’s conduct in

arriving at an investment decision, not on its results, and asking whether a fiduciary employed the appropriate methods

to investigate and determine the merits of a particular investment.’” (citations omitted)).

51 Federal regulations address ERISA’s duty of prudence in the context of investment duties. See 29 C.F.R.

§ 2550.404a-1 (2024).

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only to the initial selection of plan investments, but includes an ongoing

responsibility to monitor the investments within retirement plans.52

3. Duty to Diversify Investments. Employee benefit plan fiduciaries must

diversify the investments of a plan “so as to minimize the risk of large losses,

unless under the circumstances it is clearly prudent not to do so.”53 ERISA does

not establish fixed criteria for investment allocations, but instead requires a

determination based on the specific facts and circumstances of each plan.54

ERISA’s legislative history indicates that fiduciaries should consider factors such

as the “purpose of the plan, . . . the amount of plan assets, . . . [and] financial and

industrial conditions . . . .55

4. Duty to Act in Accordance with Plan Documents. ERISA requires fiduciaries

to discharge their duties “in accordance with the documents and instruments

governing the plan insofar as such documents and instruments are consistent with

[ERISA].”56 Accordingly, if a plan provision conflicts with a statutory

requirement of ERISA, a fiduciary is obligated to disregard the plan provision.57

Prohibited Transactions

In addition to requiring plan fiduciaries to adhere to standards of conduct, ERISA prohibits

fiduciaries from causing an employee benefit plan to engage in transactions considered likely to

injure an ERISA plan.58 The Act restricts two main categories of transactions.59 First, to curb

potential abuses with respect to the use of plan assets, the Act generally bars certain types of

transactions between a plan and a “party in interest” (e.g., a fiduciary, service provider, or

employer of employees covered by the plan), unless an exemption applies.60 Pursuant to the Act,

a fiduciary cannot cause a plan to engage in a transaction with a party in interest if the fiduciary

knows or should know that the transaction is, among other things, a sale, exchange, or leasing of

52 See, e.g., Tibble v. Edison Int’l, 575 U.S. 523, 529 (2015).

53 29 U.S.C. § 1104(a)(1)(C).

54 See, e.g., James Lockhart, Fiduciary duty to diversify investments of benefit plan as required by § 404(a)(1)(C) of

Employee Retirement Income Security Act (ERISA) (29 U.S.C.A. § 1104(a)(1)(c)), 155 A.L.R. FED. 349 (2020).

Additionally, under Section 404(c) of ERISA, if a defined contribution plan permits a participant or beneficiary “to

exercise control over the assets in his account,” a fiduciary will not be liable for any loss which may result from the

participant’s or beneficiary’s investment choices, assuming certain requirements are met. See 29 U.S.C. § 1104(c).

55 H.R. REP. NO. 93-1280, at 304 (1974).

56 29 U.S.C. § 1104(a)(1)(D).

57 Courts have evaluated this requirement in the context of when compliance with a plan provision leads to a breach of

other fiduciary duties. For example, in 2014, the Supreme Court unanimously concluded that in a case where plan

documents compelled investment in an employer’s stock and the stock was a poor investment choice, fiduciaries’

decisions to retain the investments in that stock were subject to the duty of prudence. See Fifth Third Bancorp v.

Dudenhoeffer, 573 U.S. 409, 421 (2014) (“Consider [ERISA’s] requirement that fiduciaries act “in accordance with the

documents and instruments governing the plan insofar as such documents and instruments are consistent with the

provisions of this subchapter.” . . . This provision makes clear that the duty of prudence trumps the instructions of a

plan document, such as an instruction to invest exclusively in employer stock even if financial goals demand the

contrary.”).

58 See generally Comm’r v. Keystone Consol. Indus., Inc., 508 U.S. 152, 160 (1993); S. REP. NO. 93-383, at 95–96

(1973).

59 See generally U.S. GOV'T ACCOUNTABILITY OFF., GAO-24-104632, RETIREMENT INVESTMENTS, AGENCIES CAN

BETTER OVERSEE CONFLICTS OF INTEREST BETWEEN FIDUCIARIES AND INVESTORS 10 (2024).

60 29 U.S.C. § 1106(a). ERISA defines “party in interest” broadly to include a number of individuals who could affect a

plan or its fiduciaries. See id. § 1002(14).

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property; a furnishing of goods, services, or facilities; or a loan or other extension of credit.61

Second, to prevent self-dealing—i.e., when a fiduciary acts in their own best interest rather than

the best interest of the plan—ERISA prohibits specified types of transactions between a plan and

a plan fiduciary.62 For example, ERISA specifies that fiduciaries cannot deal with the assets of a

covered plan in their own interest or for their own accounts.63

ERISA also contains a number of statutory exemptions to the prohibited transaction requirements.

Exemptions permit, among other things, reasonable compensation arrangements with parties in

interest for office space or legal, accounting, or other services needed for the establishment or

operation of the plan; certain plan investments (in the form of deposits) made in banks or in

similar financial institutions whose employees are covered by the plans; as well as the purchase

of life insurance, health insurance, or annuities from a qualifying insurer who is the employer

maintaining the plan.64 Additionally, the Act authorizes the Department of Labor to grant

exemptions to the prohibited transaction requirements for individuals or classes of fiduciaries or

transactions, but only upon a determination that the exemption is administratively feasible, in the

interests of the plan and its participants and beneficiaries, and protective of plan participant and

beneficiary rights.65

Under ERISA, private parties and government entities can bring various civil actions to enforce

the Act’s fiduciary duty and prohibited transaction provisions.66 Among these enforcement

provisions, ERISA authorizes the Secretary of Labor, a participant, a beneficiary, or another plan

fiduciary to bring a civil action to redress a breach of fiduciary duty, or for relief against a

fiduciary or party in interest who causes a plan to engage in a prohibited transaction.67 Parties that

engage in a prohibited transaction may be subject to other penalties, including excise taxes

pursuant to the Internal Revenue Code or monetary penalties imposed by the Department of

Labor.68

Express Preemption of State Law

Pursuant to the Constitution’s Supremacy Clause, a validly enacted federal law generally

supersedes an inconsistent state law under a doctrine known as preemption.69 In cases where

federal and state laws conflict, state law may be supplanted, leaving it void and “without effect.”70

Under one type of preemption, a federal statute may displace existing state law through express

61 Id. § 1106(a)(1).

62 Id. § 1106.

63 Id. § 1106(b)(1).

64

Id. § 1108.

65 The Department of Labor has promulgated regulations outlining the procedures for filing and processing prohibited

transaction exemption applications. See 29 C.F.R. §§ 2570.30–2570.52.

66 See 29 U.S.C. § 1132.

67 Id. § 1132(a)(2), (3), (5).

68 See 26 U.S.C. § 4975(a)–(b); 29 U.S.C. § 1132(i).

69 U.S. CONST. art. VI, cl. 2. For a general discussion of the Supremacy Clause and federal preemption, see Cong. Rsch.

Serv., ArtVI.C2.3.4 Modern Doctrine on Supremacy Clause, CONSTITUTION ANNOTATED,

https://constitution.congress.gov/browse/essay/artVI-C2-3-4/ALDE_00013402/ (last visited March 18, 2025).

70 See, e.g., Merck Sharp & Dohme Corp. v. Albrecht, 587 U.S. 299, 313 (2019) (“[I]t has long been settled that state

laws that conflict with federal law are without effect.” (quoting Mutual Pharm. Co. v. Bartlett, 570 U.S. 472, 480

(2013))).

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language in a congressional enactment, often called an express preemption clause.71 In those

instances, determining the scope of federal preemption is generally a matter of statutory

interpretation.72

Section 514(a) in Title I of ERISA, the Act’s express preemption clause, broadly preempts “any

and all State laws insofar as they may now or hereafter relate to any employee benefit plan.”73

The Supreme Court has noted that the “basic thrust” behind Congress’s inclusion of this

preemption provision was “to avoid a multiplicity of regulation in order to permit the nationally

uniform administration of employee benefit plans.”74 Pursuant to this clause, ERISA may

supersede state laws that, for example, aim to regulate plan benefits, or the administration,

operation, or structure of employee benefit plans.75 The question of whether ERISA preempts

state law is a frequently litigated issue that has found its way to the Supreme Court numerous

times.

In several opinions, the Court has interpreted the “relate to” language as applying to any state law

that “has a connection with or reference to [an employee benefit] plan.”76 The Court has observed

that a state law has an impermissible “connection with” an ERISA plan if it “governs . . . a central

matter of plan administration” or “interferes with nationally uniform plan administration.”77 For

example, in Shaw v. Delta Airlines, a New York law that required plans to provide pregnancyrelated benefits was held preempted because it burdened the administration of employee benefit

plans.78 Similarly, in Egelhoff v. Egelhoff, the Washington law at issue provided that the

designation of a spouse as the beneficiary of a non-probate asset (e.g., a pension plan) would be

revoked automatically upon divorce.79 In determining that the Washington law had an

impermissible connection with ERISA plans, the Court explained that one of the principal goals

of ERISA is to enable employers to establish a uniform administrative scheme that provides

standard procedures for the processing of claims and disbursement of benefits.80 The Court

71 See generally Lorillard Tobacco v. Reilly, 533 U.S. 525, 541 (2001). The Supreme Court has also held that

preemption of state law may be implied. For a discussion of federal preemption principles, see CRS Report R45825,

Federal Preemption: A Legal Primer, by Bryan L. Adkins, Alexander H. Pepper, and Jay B. Sykes (2023).

72 See, e.g., Puerto Rico v. Franklin Cal. Tax-Free Trust, 579 U.S. 115, 124 (2016).

73 29 U.S.C. § 1144 (emphasis added). Aside from the express preemption clause under Section 514(a), the Supreme

Court has interpreted Section 502 of ERISA, 29 U.S.C. § 1132, to have preemptive effect. See, e.g., Davila, 542 U.S. at

208-10. Section 502 limits judicial claims that may be brought and remedies a plaintiff may recover under ERISA and

may preempt a state law cause of action. As noted, this section creates a civil enforcement scheme that allows a

participant or beneficiary of a plan to bring a civil action for various reasons, including “to recover benefits due to him

under the terms of the plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits

under the terms of the plan.” If a plaintiff seeks to bring a state law claim is “within the scope” of Section 502(a), the

state law claim can be preempted. A discussion of the preemption and Section 502 of ERISA is beyond the scope of

this report.

74 N.Y. State Conf. of Blue Cross & Blue Shield Plans v. Travelers Ins. Co. 514 U.S. 645, 657 (1995).

75 See, e.g., Soehnlen v. Fleet Owners Ins. Fund, 844 F.3d 576, 589 (6th Cir. 2016) (ERISA preempts state laws that

among other things, “mandate employee benefit structures or their administration” or “bind employers or plan

administrators to particular choices or preclude uniform administrative practice, thereby functioning as a regulation of

an ERISA plan itself.”) (citing Penny/Ohlmann/Nieman, Inc. v. Miami Valley Pension Corp., 399 F.3d 692, 698 (6th

Cir. 2005)).

76 See, e.g., Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97 (1982).

77 Egelhoff v. Egelhoff, 532 U.S. 141, 148 (2001).

78 Shaw, 463 U.S. at 85-100.

79 Egelhoff, 532 U.S. at 144.

80 Id. at 148.

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maintained that uniformity is impossible if plans are subject to different legal obligations in

different states.81

A state law has a “reference to” an ERISA plan if it acts “immediately and exclusively” on

ERISA plans, or if the existence of such a plan is essential to the law’s operations.82 In Mackey v.

Lanier Collection Agency & Service, the Court evaluated a Georgia statute governing the

garnishment of funds from ERISA plans.83 The Court held that ERISA preempted the state statute

that specifically exempted ERISA plans under state garnishment procedures.84 The Court declared

that “any state law which singles out ERISA plans, by express reference, for special treatment is

pre-empted.”85

Despite the broad scope of ERISA’s express preemption clause, the Supreme Court has articulated

that “[s]ome state actions may affect employee benefit plans in too tenuous, remote, or peripheral

a manner to warrant a finding that the law ‘relates to’ the plan.”86 For instance, in New York State

Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance Co., insurance companies

providing services to ERISA-governed plans challenged a state law that required the plaintiff

insurers to pay hospital surcharges.87 Although the state law at issue triggered higher costs for

ERISA plans, the Court upheld the law, concluding it had an “indirect economic influence” that

did not bind administrators to particular choices with respect to a plan.88 More recently, in

Rutledge v. PCMA, the Court examined the validity of an Arkansas statute that generally

regulated pharmacy benefit manager (PBM) reimbursement amounts to pharmacies, including

reimbursement for drugs provided to patients through ERISA plans.89 In concluding that the state

law was not preempted, the Court affirmed that the state law “amounts to cost regulation” and is

not subject to ERISA preemption, even if the law indirectly affects costs or alters incentives for

providing benefits in ERISA-governed plans.90

There are also statutory exceptions to ERISA preemption, including exceptions that explicitly

preserve aspects of the states’ traditional role in regulating certain fields. For example,

historically, insurance matters were primarily regulated at the state, rather than the federal, level.91

Under ERISA’s “savings clause,” states may enforce any “law . . . which regulates insurance,

banking, or securities.”92 Thus, the savings clause generally permits states to regulate entities in

these covered industries without running afoul of ERISA’s preemptive scheme. One key Supreme

81 Id. Additionally, in Gobeille v. Liberty Mutual Insurance Co., 577 U.S. 312 (2016), the Supreme Court concluded in

part that a Vermont law that required employer-sponsored health plans and other entities to report health care claims

information for inclusion in an all-payer claims database had an impermissible connection with ERISA plans. Citing

ERISA’s extensive reporting, disclosure, and recordkeeping requirements, the Court held that Vermont’s reporting

regime “imposes duties that are inconsistent with the central design of ERISA, which is to provide a single uniform

national scheme for the administration of ERISA plans without interference from laws of the several States….” Id. at

326.

82 See, e.g., Cal. Div. of Lab. Standards Enf’t v. Dillingham Constr., 519 U.S. 316, 325 (1997).

83 486 U.S. 825 (1988).

84 Id. at 830.

85 Id. at 838, n.12.

86 See, e.g., Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 100 n.21 (1982).

87 N.Y. State Conf. of Blue Cross & Blue Shield Plans v. Travelers Ins. Co, 514 U.S. 645 (1995).

88 See id. at 659–60.

89 Rutledge v. Pharm. Care Mgmt. Ass’n, 592 U.S. 80 (2020).

90 Id. at 86–88.

91 See generally McCarran-Ferguson Act, 15 U.S.C. §§ 1011-1015 (addressing federal and state roles in insurance

regulation).

92 29 U.S.C. § 1144(b)(2)(A).

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Court case addressing the savings clause is Kentucky Association of Health Plans, Inc. v. Miller,

in which the Supreme Court found that Kentucky’s “any willing provider” laws, which prohibited

insurers from discriminating against a health care provider willing to meet the insurer’s criteria

for participation in the health plan, were saved from ERISA preemption.93

Application of the savings clause is cabined by what is commonly referred to as ERISA’s

“deemer clause,” which generally provides that an employee benefit plan governed by ERISA

shall not be “deemed” an insurer, bank, trust company, investment company, or a company

engaged in the insurance or banking business in order to be subject to state law (and accordingly,

avoid ERISA preemption).94 In FMC v. Holliday, the Supreme Court found that a Pennsylvania

law that prevented subrogation95 when applied to a self-funded health plan was preempted by

ERISA by virtue of the deemer clause.96 In its decision, the Court held that although the statute

did “relate to” an ERISA benefit plan, the law fell within the ambit of the savings clause because

the law controlled the terms of insurance contracts by invalidating any subrogation provisions

that they contain.97 However, because the plan in question was a self-funded plan (i.e., it did not

offer benefits through health insurance), the Court concluded that the plan could not be “deemed”

an insured plan for the purpose of state regulation.98

ERISA and Recent Supreme Court Litigation

The Supreme Court has reviewed numerous ERISA cases, and these decisions have affected the

application of private-sector employee benefit plan regulation and the retirement, health, and

other benefits provided to plan participants. On January 22, 2025, the Court heard oral arguments

in Cunningham v. Cornell University, a lawsuit involving the necessary “ingredients” for alleging

a prohibited transaction violation against plan fiduciaries. The Court is also considering whether

to hear Mulready v. PCMA, a case about federal preemption of state laws governing PBM

practices. This section of the report provides background and selected considerations for

Congress relating to these pending cases.

Requirements for Viable Prohibited Transaction Claims Against

Plan Fiduciaries: Cunningham v. Cornell University

Background. For the past several years, there has been extensive litigation over whether ERISA

retirement plan fiduciaries imprudently selected or failed to monitor plan investments with

“excessive fees” that underperformed alternative, lower-priced investments.99 Excessive fee

litigation has also involved legal challenges relating to plan service providers and claims that

93 538 U.S. 329 (2003). In finding that the any willing provider laws “regulated insurance,” the Court departed from

reasoning it had used in earlier savings clause cases, and articulated a new two-part test. Under this test, a state law falls

within the ambit of the savings clause if it is “specifically directed toward” the insurance industry and “substantially

affects the risk pooling arrangement between the insurer and insured.” See id. at 334–38.

94 29 U.S.C. § 1144(b)(2)(B).

95 Subrogation has been defined as “the principle under which an insurer that has paid a loss under an insurance policy

is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered

by the policy.” BLACK’S LAW DICTIONARY (12th ed. 2024). In other words, a subrogation provision could require a

health plan participant to reimburse the plan for medical costs that the plan had paid, if the member recovers on a claim

in a liability action against a third party.

96 498 U.S. 52 (1990).

97 Id. at 60–61 (citing Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. at 740–741).

98 See FMC, 498 U.S. at 64. See also discussion supra note 27.

99 See generally JAYNE E. ZANGLEIN & SEAN M. ANDERSON, ERISA LITIGATION (2021) (ebook).

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fiduciaries improperly paid exorbitant amounts to providers to administer 401(k) or other defined

contribution plan benefits.100 In these cases, plan participants have alleged that plan fiduciaries

breached their duties by paying unnecessarily high recordkeeping and/or investment management

fees and expenses, which substantially lowered the amounts in the participants’ retirement

accounts.101 Lower courts have reached varying conclusions in these lawsuits, and some litigating

parties have reached multimillion-dollar settlements.102

Beginning around 2016, there was a swell of excessive fee litigation involving 403(b) plans, a

type of defined contribution plan used by certain educational institutions and tax-exempt

organizations.103 In these cases, plan participants have alleged, among other things, that university

plan sponsors breached their fiduciary duties by imprudently subjecting the plans to excessive

recordkeeping expenses and failing to remove overpriced and underperforming investments from

larger suites of more reasonable investment offerings.104 In a case that reached the Supreme

Court, Hughes v. Northwestern University, the Court emphasized that to meet their duty of

prudence, plan fiduciaries must continuously monitor defined contribution plan investments and

remove imprudent investments from the plan, even if the plan offers an extensive range of options

in its investment lineup.105

Additionally, in some excessive fee cases, plan participants have claimed that fiduciaries violated

ERISA by causing plans to engage in prohibited transactions, in which fiduciaries entered into

agreements with investment service providers who were overpaid for their work.106 As discussed

earlier in this report, under ERISA, a prohibited transaction occurs when a fiduciary causes a plan

to enter into a transaction with a “party in interest,” including plan service providers, unless an

exemption is met.107 Under one relevant exemption, the Act generally allows for “reasonable

arrangements” for plan services with a party in interest that are necessary for plan operation, but

only if “reasonable compensation” is paid for such arrangements.108 The ERISA statute does not

define the bounds of what constitutes reasonable compensation, but regulations specify that a

determination of what compensation is reasonable depends on the particular facts and

circumstances of each arrangement.109

In Cunningham v. Cornell University, current and former university employees who participate in

the university’s “jumbo” retirement plans brought a class action lawsuit against the university and

100 See WILLIAM E. KNEPPER & DAN A. BAILEY, LIABILITY OF CORPORATE OFFICERS AND DIRECTORS § 9.15 (8th ed.

2020).

101 See generally id.

102 See generally ZANGLEIN & ANDERSON, supra note 99; 401(k) Excessive Fee Litigation Spiked to ‘Near Record Pace’

in ’24, PLAN ADVISOR (Jan. 13, 2025), https://www.planadviser.com/401k-excessive-fee-litigation-spiked-near-recordpace-24/.

103

See Jacklyn Wille, Scorecard: College Retirement Plan Litigation Three Years Later, BLOOMBERG LAW (Sept. 25,

2019), https://news.bloomberglaw.com/employee-benefits/scorecard-college-retirement-plan-litigation-three-yearslater.

104 See, e.g., Amended Complaint, Sacerdote v. N.Y. Univ., No. 1:16-cv-06284 (S.D.N.Y. Nov. 9, 2016), ECF No. 39;

Second Amended Complaint, Cassell v. Vanderbilt Univ., No. 3:16-cv-02086 (M.D. Tenn. June 6, 2018), ECF No.

102; Second Amended Complaint, Henderson v. Emory Univ., No. 1:16-cv-02920 (N.D. Ga. Dec. 20, 2017), ECF No.

108.

105 Hughes v. Northwestern Univ., 595 U.S. 170, 173 (2022).

106 See, e.g., Sweda v. Univ. of Pa, 923 F.3d 320 (3d Cir. 2019).

107 29 U.S.C. § 1106.

108 Id. § 1108(b)(2).

109 29 C.F.R. § 2550.408c-2.

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other parties involved in the plan’s management.110 Most relevant to pending Supreme Court

litigation, participants claimed that the plan sponsor and its fiduciaries engaged in certain

prohibited transactions that paid the plans’ service providers unreasonably high fees.111 In their

complaint, participants asserted that the defendants entered into an agreement with the providers

for overpriced recordkeeping and other services for the plan and caused the plan to enter into a

prohibited transaction.112 The U.S. District Court of the Southern District of New York rejected

these arguments and granted the defendants’ motion to dismiss the plaintiffs’ prohibited

transaction claims, and the U.S. Court of Appeals for the Second Circuit affirmed this portion of

the district court’s judgment.113

In its decision, the appeals court concluded that to plead a violation of the ERISA’s prohibited

transaction requirements at issue in the case, a plaintiff must plausibly allege not only that the

plan engaged in a transaction with a party in interest for services, but also that the transaction did

not meet an exemption (e.g., that the transaction involved unreasonable compensation).114 The

appeals court explained, among other things, that ERISA’s text supported this interpretation, and

that, under the Act, the prohibited exemptions are “so integral . . . to the offense that it is part of

the offense’s ingredients.”115 To hold otherwise, the appeals court found, would mean that all

payments that plan fiduciaries make to service providers in exchange for plan services would be

presumptively prohibited.116 As the court maintained, such an outcome would make it impossible

to outsource plan administration, and “would be inconsistent with the Supreme Court’s

recognition that ERISA represents a careful balancing intended to induce employers to offer

benefits by assuring a predictable set of liabilities.”117 Other appellate courts have reached

different conclusions on this issue.118 The plaintiffs in Cunningham petitioned the Supreme Court

110 The Petition for a Writ of Certiorari filed with the Supreme Court indicates the retirement plans serve over 30,000

participants and contain more than $3.3 billion in assets. See Petition for a Writ of Certiorari at 6, Cunningham v.

Cornell Univ., No. 23-1007 (U.S. Apr. 12, 2024).

111 In their petition for Supreme Court review, plan participants describe aspects of the arrangement that, in their view,

generated the unreasonably high recordkeeping fees:

There are two common models for collecting recordkeeping fees. First, plans can pay a flat fee

indexed to the number of Plan participants. Because of economies of scale, jumbo plans generally

obtain lower flat fees than smaller plans. Second, plans can choose a revenue sharing model, with

fees calculated based on a set portion of plan assets. As assets grow, fees grow, even if the number

of participants and the services provided do not increase. While there is no ceiling, there is typically

a floor—since recordkeepers often demand additional direct payments if assets decline below a

certain level. Respondents here opted to pay recordkeeping fees through a revenue sharing, rather

than flat fee, model.

See id. at 7.

112 See Corrected Amended Complaint at 128–29, Cunningham v. Cornell Univ., No. 16-CV-6525 (S.D.N.Y Feb. 24,

2017), ECF No. 81.

113 Memorandum and Order at 26, Cunningham v. Cornell Univ., No. 16-CV-6525, 2017 WL 4358769, at *13

(S.D.N.Y. Sept. 29, 2017), aff'd, 86 F.4th 961 (2d Cir. 2023), cert. granted, 145 S. Ct. 118 (2024).

114 Cunningham v. Cornell Univ., 86 F.4th at 973–79.

115 See id. at 975.

116 See id.

117 Id. at 976.

118 See, e.g., Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 601 (8th Cir. 2009) (plaintiffs stating a viable prohibited

transaction claim by alleging that plan sponsor caused the plan to enter into an agreement with a party in interest that

received “undisclosed amounts of revenue sharing payments in exchange for services rendered to the [p]lan”); Cf.

Sweda v. Univ. of Pa., 923 F.3d 320, 337 (3d Cir. 2019) (“Reading § 1106(a)(1) as a per se rule barring all transactions

between a plan and party in interest would miss the balance that Congress struck in ERISA, because it would expose

fiduciaries to liability for every transaction whereby services are rendered to the plan.”).

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for review of this issue, and the Court agreed to hear the case.119 Oral arguments were held on

January 22, 2025.

Considerations for Congress. Pursuant to existing Supreme Court jurisprudence, for a plaintiff’s

claim to survive a motion to dismiss, the complaint must contain “sufficient factual matter” to

state a claim that is “plausible on its face.”120 In Cunningham, the Supreme Court may clarify the

necessary elements for “plausibility” in pleading ERISA prohibited transaction claims,

particularly those involving third-party service agreements. Federal courts generally determine

whether a plaintiff has made a plausible claim before discovery occurs, at a point in which

plaintiffs may not yet have access to certain information about a plan’s financial arrangements.

Accordingly, in pleading a prohibited transaction claim in an excessive fee case, if a plaintiff must

plausibly allege both that a prohibited transaction occurred and that such transaction did not meet

an exemption, it may be more difficult for plaintiffs to bring a viable claim for a prohibited

transaction violation. Some legal commentators suggest that such an outcome is warranted and

consistent with congressional intent, as a means of curbing meritless claims and restricting

unnecessary litigation expenses on employers offering retirement plans.121 Other legal

commentators, however, posit that a more rigorous pleading standard for prohibited transaction

claims would undercut the role that participants and beneficiaries play in addressing potential

plan mismanagement, as part of ERISA’s enforcement scheme.122

Given, as federal reports indicate, that the level of fees and expenses in a retirement plan may

affect retirement savings growth, and the prevalence of ERISA excessive fee litigation, Members

of Congress may have interest in the outcome of the Cunningham case.123 Congress may choose,

should it deem it appropriate, to consider legislation that would establish the requisite pleading

standards in these types of excessive fee cases, under which a plaintiff’s claim could withstand a

motion to dismiss.

119 SUPREME COURT OF THE UNITED STATES, GRANTED & NOTED LIST, OCTOBER 2024 TERM CASES FOR ARGUMENT, No.

23-1007 (2024), https://www.supremecourt.gov/qp/23-01007qp.pdf. See also SUPREME COURT OF THE UNITED STATES,

NO. 23-1007, https://www.supremecourt.gov/search.aspx?filename=/docket/docketfiles/html/public/23-1007.html.

120 See Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). See also Ashcroft v. Iqbal, 556 U.S. 662 (2009).

121 See, e.g., Brief for the American Benefits Council, the ERISA Industry Committee, and The Spark Institute as

Amici Curiae Supporting Respondents at 4, Cunningham v. Cornell Univ., No. 23-1007 (U.S. Jan. 3, 2025)

(“Petitioner’s rule would wreak havoc on ordinary plan operations. The threat of baseless litigation immune from

dismissal would make some qualified individuals reluctant to serve as fiduciaries altogether . . . . Sponsors that offer

benefit plans would find themselves the target of meritless lawsuits that draw attention and dollars away from

employees’ actual benefits. . . .”).

122 See, e.g., Brief for Amici Curiae AARP and AARP Foundation as Amici Curiae Supporting Petitioners at 14,

Cunningham v. Cornell Univ., No. 23-1007 (U.S. Nov. 26, 2024) (“This Court thus should reject the Second Circuit’s

new heightened pleading standard for section 1106(a) claims because it would add unnecessary obstacles to plan

participants’ ability to protect their interests as well as run afoul of Congress’s intent to establish a robust enforcement

scheme under the statute.”).

123 See e.g., U.S. Gov’t Accountability Off., GAO-21-357, 401(k) Retirement Plans, Many Participants Do Not

Understand Fee Information, but DOL Could Take Additional Steps to Help Them 1 (2021)(“[O]ur prior work has

shown that even seemingly small fees, such as a 1 percent annual charge can significantly reduce 401(k) plan

participants’ retirement savings, even as investment returns may grow the savings overall.”); U.S. Gov’t Accountability

Off., GAO-07-21, 401(k) Private Pensions: Changes Needed to Provide 401(k) Plan Participants and the Department of

Labor Better Information on Fees 7 (2006).

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State PBM Laws and ERISA Preemption: Mulready v.

Pharmaceutical Care Management Association (PCMA)

Background. Alongside recent federal efforts to combat escalating prescription drug prices, state

governments have sought to address these prices within their borders.124 Some state efforts

involve regulation of PBMs, companies that facilitate the purchase of drugs through the

pharmaceutical distribution chain and administer prescription drug coverage on behalf of health

insurers, employers, and others.125 Private health insurance plans and other health care payers

may contract with PBMs to design and administer prescription drug benefit plans.126 In doing so,

PBMs design drug formularies, negotiate prescription drug prices with manufacturers, and

contract with pharmacies to dispense drugs to enrollees. As states have enacted legislative

measures intended to hold PBMs accountable for their role in the pharmaceutical marketplace,127

PBMs have challenged some of these measures on the basis that they are preempted by federal

law, including ERISA.128 PBM advocates have claimed that ERISA preempts certain state PBM

laws, in part because the laws have a direct regulatory effect on ERISA-governed plans, plan

design, and how these plans manage drug benefits.129

As noted above, in 2021, the Supreme Court addressed the interplay between state PBM laws and

ERISA preemption in Rutledge v. PCMA. At issue in Rutledge was an Arkansas statute that

establishes mechanisms designed to anchor PBM pharmacy reimbursement rates to the

pharmacies’ drug acquisition costs.130 A PBM trade association sued the state, claiming, among

other things, that ERISA preempted the Arkansas state law as it applied to PBMs that provide

drug benefit services to ERISA plans.131 In rejecting these claims and concluding that ERISA

does not preempt Arkansas’s PBM law, the Supreme Court employed the Court’s traditional test

for ERISA preemption: whether the state law has “a connection with or reference to” an ERISA

plan.132

In discussing why the Arkansas law lacked a prohibited “connection with” an ERISA plan, the

Court explained that ERISA is “primarily concerned with preempting laws that require providers

to structure benefit plans in particular ways,” such as requiring payment for a specific benefit.133

ERISA does not, the Court found, preempt state requirements that “merely increase costs or alter

incentives for ERISA plans without forcing plans to adopt any particular scheme of substantive

coverage.”134 However, consistent with other ERISA preemption decisions, the Court also

124 See, e.g., CRS In Focus IF12203, Selected Health Provisions of the Inflation Reduction Act, by Laura A. Wreschnig

(2022); National Academy for State Health Policy, 2025 STATE LEGISLATION TO LOWER PRESCRIPTION DRUG COSTS,

https://nashp.org/state-tracker/2025-state-legislation-to-lower-prescription-drug-costs/.

125 See generally, U.S. GOV'T ACCOUNTABILITY OFF., GAO-24-106898,

PRESCRIPTION DRUGS, SELECTED STATES' REGULATION OF PHARMACY BENEFIT MANAGERS (2024).

126 See generally, CRS Legal Sidebar LSB11080, Pharmacy Benefit Managers: Current Legal Framework, by HannahAlise Rogers, Jennifer A. Staman, and Alexander H. Pepper (2023).

127 See generally, State Tracker 07-10-23, State Pharmacy Benefit Manager Legislation, NATIONAL ACADEMY FOR

STATE HEALTH POLICY (Oct. 21, 2024), https://nashp.org/state-tracker/state-pharmacy-benefit-manager-legislation/.

128 See, e.g., Rutledge v. Pharm. Care Mgmt. Ass'n, 592 U.S. 80 (2020).

129 See, e.g., Brief for Respondent, Rutledge v. Pharm. Care Mgmt. Assoc., 592 U.S. 80 (2020) (No. 18-540), 2020 WL

1478581.

130 Rutledge v. Pharm. Care Mgmt. Assoc., 592 U.S. 80, 83–85 (2020); 2015 Ark. Acts 900.

131 Rutledge, 592 U.S. at 85.

132 Id. at 86.

133 Id. at 86–88.

134 Id. at 88.

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recognized limits on this flexibility and generally explained that state laws cannot compel ERISA

plans to offer a certain type of coverage or administer benefits in a particular manner.135 The

Court further determined that the Arkansas law did not impermissibly “refer to” ERISA plans

because ERISA plans are unrelated to the state law’s operation—the law applies to PBMs

regardless of whether they manage ERISA plans or not.136

In the wake of Rutledge, courts continue to address questions related to ERISA preemption and

state PBM laws. One such case is PCMA v. Mulready, a legal challenge to Oklahoma’s PBM

requirements that govern financial arrangements between PBMs and pharmacies.137 Among other

requirements, the state law at issue generally restricts PBMs from using certain discounts to

encourage insured individuals to use preferred, in-network pharmacies, and compels PBMs to

design networks so that a certain percentage of covered individuals live within a set distance to a

participating brick and mortar pharmacy.138 Additionally, the state law includes an “any willing

provider” provision, which requires PBMs to allow any pharmacy willing to accept a PBM’s

terms and conditions in its preferred pharmacy network.139

After a district court concluded that the Oklahoma PBM laws withstood ERISA preemption, the

U.S. Court of Appeals for the Tenth Circuit reversed the decision and concluded that ERISA

superseded the state requirements.140 In its opinion, the appeals court reasoned that the Oklahoma

laws “effectively abolish[ed] the two-tiered network structure” by preventing PBMs from

contracting only with certain pharmacies (e.g., mail-order pharmacies) as a means of controlling

costs.141 The appeals court further explained that the network requirements as applied to ERISA

plans were “quintessential state laws that mandate benefit structures,” and thus, forbidden by the

Act.142 The appeals court also distinguished the Oklahoma laws from those at issue in Rutledge,

noting that not only did the Oklahoma laws impose higher costs on PBMs, they also prevented

PBMs from offering plans with certain network designs.143 Subsequently, Oklahoma’s Attorney

General filed a petition for Supreme Court review, and this petition is currently pending.144 The

Court has invited the U.S. Solicitor General to file a brief in Mulready expressing the views of the

United States on the case, but a brief has yet to be filed.145

Considerations for Congress. Some federal lawmakers have expressed support for enacting

federal measures designed to regulate PBMs, including measures intended to make their practices

135 Id. at 89.

136 See id. at 88–89.

137 See PCMA v. Mulready, 78 F.4th 1183 (10th Cir. 2023). See also, e.g., Alaska v. Express Scripts, Inc., No. 3:23-cv-

00233, 2024 WL 2321210, at *9–11 (D. Alaska May 22, 2024).

138 OKLA. STAT. tit. 36, § 6963(E) (2024); OKLA. STAT. tit. 36, § 6961(A)–(B) (2024).

139

See OKLA. STAT. tit. 36, § 6962(B)(4) (2024).

140 Pharm. Care Mgt. Assn. v. Mulready, 598 F. Supp. 3d 1200 (W.D. Okla. 2022), rev'd and remanded, 78 F.4th 1183

(10th Cir. 2023).

141 Id. at 1199.

142 Id.

143 Id. at 1199–1200.

144 Petition for Writ of Certiorari, Mulready v. Pharm. Care Mgmt. Assoc., No. 23-1213 (U.S. May 10, 2024).

145 Notably, in an earlier brief filed with the Tenth Circuit, the Solicitor General expressed the position that ERISA

preempted Oklahoma’s pharmacy network requirements, but the requirements were largely exempted from preemption

under ERISA’s savings clause for insurance. See Brief for the United States as Amici Curiae Supporting Neither Party

Urging Affirmance in Part and Reversal in Part, Pharm. Care Mgmt. Assoc. v. Mulready, No. 22-6074 (U.S. Apr. 10,

2023). The Tenth Circuit did not address this savings clause issue in its opinion.

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ERISA: Legal Framework and Recent Supreme Court Litigation

more transparent and restrict how these entities may be compensated.146 At the same time,

according to recent reports, all states have passed some type of legislation to regulate PBMs and

their business practices.147 Current state PBM requirements vary, but these measures include

licensure and registration requirements, transparency measures, and requirements relating to

consumer or pharmacy protections and pharmacy reimbursement.148 Should Congress decide to

enact PBM-related legislation, questions may arise regarding the interplay between such state and

federal provisions.

While the Court in Rutledge affirmed that some types of state PBM laws may not be subject to

ERISA preemption, the Court may further clarify ERISA’s preemptive reach with respect to state

PBM laws, should it choose to grant review in Mulready. Additionally, federal proposals have

been introduced in recent Congresses to regulate PBM activities with respect to ERISA plans.

Examples include H.R. 5378, the Lower Costs, More Transparency Act in the 118th Congress,

which would have compelled entities that provide PBM services and other parties to provide

detailed information on prescription drug spending to ERISA plans.149 This legislation would not

have amended ERISA’s preemption clause or expressly addressed the degree to which states may

regulate a PBM’s functions in service to ERISA plans. Congress may choose, should lawmakers

deem it appropriate, to explicitly address this issue in any future legislation.

Author Information

Jennifer A. Staman

Legislative Attorney

Disclaimer

This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan

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under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other

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copy or otherwise use copyrighted material.

146 See, e.g., Sigi Ris, Cassidy, Sanders Say PBM Reform a Priority for Health Committee, INSIDE HEALTH POLICY (Jan.

21, 2025), https://insidehealthpolicy.com/daily-news/cassidy-sanders-say-pbm-reform-priority-health-committee.

147 See e.g., U.S. GOV’T ACCOUNTABILITY OFF., GAO-24-106898,

PRESCRIPTION DRUGS, SELECTED STATES’ REGULATION OF PHARMACY BENEFIT MANAGERS (2024).

148 See id.

149 H.R. 5378, 118th Cong. § 105 (as passed by House, Dec. 11, 2023).

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