Tough Sledding Ahead for ERISA Lawsuits in 2026

We are now in upside down land.

Plan participants are now seen as predators, hungrily eyeing the retirement savings of co-workers and the fiduciaries who protect them. Worse yet, they may have the nefarious assistance of competent ERISA counsel!

Especially in the last half of 2025, federal courts have also doubled down on limits that may make it harder for ERISA plan participants to oversee the actions of fiduciaries. It’s not all doom and gloom, of course, but participants might do well to be prepared for tougher sledding in the new year.

The ERISA Litigation Reform Act

The changes proposed by the ERISA Litigation Reform Act are quite technical, so they take some background to unpack. The place to begin is with the Supreme Court’s 2024 decision in Cunningham v. Cornell University, which tackled the question of how courts should handle plan participants’ allegations that plan fiduciaries had committed “prohibited transactions.”

For the sake of simplicity, a “prohibited transaction” is generally some form of self-dealing. Under section 404 of ERISA, plan fiduciaries must act solely for the benefit of plan participants and beneficiaries. Anything that plan trustees or other fiduciaries do to benefit themselves or the company sponsoring the plan is a “prohibited transaction.” Section 408 of ERISA recognizes certain exceptions to this general rule for accounting, legal or other services that are necessary for a retirement plan to function. Cunningham focuses on the exceptions.

In its decision, the Supreme Court held that when plan participants plausibly claim that fiduciaries acted improperly by engaging in prohibited transactions, the defendant fiduciaries must show that their actions fit within the exceptions.

The outcry by fiduciaries and plan sponsors to this decision was loud and immediate. It was generally along the lines of “the floodgates of ERISA lawsuits will open.”

Flipping the burden of proof to the plan participants

The ERISA Litigation Reform Act would reverse the decision in Cunningham. It would require that plan participants demonstrate from the very beginning that none of the law’s exceptions would apply to the fiduciary transactions at issue.

This is nearly impossible to do at the earliest stages of an ERISA lawsuit. It’s a “pleading trap”. Plaintiffs generally do not have access to the internal memos or other documents that could prove their allegations until at least the discovery phase of litigation.
Few ERISA prohibited transaction lawsuits would survive the summary judgment phase, thus neatly taking care of the fiduciaries’ problem. The ERISA Litigation Reform Act has now been sent to committee. That is generally where class action lawsuit reform laws die.

But this time may be different because of other inauspicious legal developments.

Courts double down

On December 9, 2025, the Solicitor General submitted briefs to the Supreme Court regarding Pizarro v. The Home Depot, Inc., and Parker-Hannifin Corp. v. Johnson. Both are ERISA class action lawsuits that address the burden of proof for plaintiffs claiming breaches of ERISA’s fiduciary duty rules. The government urged the Court to adopt more favorable legal standards for ERISA plan fiduciaries.

Northrop Grumman won dismissal of a lawsuit claiming it misused forfeited retirement plan funds to reduce employer contributions. In Garner et al. v. Northrop Grumman Corp. et al., District Judge Anthony Trenga of the Eastern District of Virginia ruled that the plan documents allowed the company to apply forfeiture funds at its discretion.

Several pro-business interest groups, including the ERISA Industry Committee, U.S. Chamber of Commerce, and National Retail Federation, filed a joint amicus brief with the U.S. 8th Circuit Court of Appeals. They argued that the court should uphold a lower court’s June ruling that dismissed a 401k forfeiture complaint against Wells Fargo.

Of course, plan participants have had wins, as well. In Khan v. Bd. of Dirs. of Pentegra Defined Contribution Plan, a jury awarded plan participants damages in the amount of nearly $38.8 million. The decision is significant, not just for the size of the award, but also because it seems to open the doors to jury trials, at which plan participants may have a better chance of success.

The bottom line for plan participants who bring ERISA breach of fiduciary duty lawsuits in the new year is that they must be aware of and prepared for a more challenging legal atmosphere.