Key takeaways
- Recently, the Fourth Circuit Court of Appeals reversed a district court's class certification order in Trauernicht v. Genworth Financial, Inc.
- The appellate decision restricts the use of mandatory, no opt-out classes in ERISA defined contribution plan litigation.
- The court addressed the standards for commonality in the context of ERISA claims, focusing on the individualized nature of defined contribution accounts.
- The ruling impacts how monetary relief claims under ERISA Section 502(a)(2) are treated in class actions, likely requiring opt-out rights for participants.
The Decision
The Fourth Circuit issued its published opinion in Trauernicht v. Genworth Financial (No. 24-1880) on March 10, 2026, reversing and vacating class certification.
Recently, the Fourth Circuit Court of Appeals issued a decision in the case of Trauernicht v. Genworth Financial Inc that alters the procedural mechanics of retirement plan disputes. As first reported on April 29, 2026, the appellate court reversed a district court's order regarding class certification in an ERISA case. Specifically, the decision concerns the use of mandatory, no opt-out classes in ERISA defined contribution plan litigation. By rejecting the lower court's certification order, the Fourth Circuit addressed the standards for commonality in the context of ERISA claims. The ruling directly impacts how monetary relief claims under ERISA Section 502(a)(2) are treated in class actions moving forward.
Why It Matters
This ruling changes the strategic calculus for both plaintiffs and defendants in retirement plan litigation. Plaintiffs frequently seek to certify mandatory classes in ERISA cases to bind all plan participants to a single judgment or settlement. This approach avoids the expense of individualized notice and eliminates the risk that participants might opt out to pursue separate claims. When a court certifies a mandatory class, participants lose the right to exclude themselves from the litigation. By reversing the district court, the Fourth Circuit signaled that defined contribution plans do not automatically fit the mold for mandatory, no opt-out class treatment. This creates a higher barrier for plaintiffs attempting to aggregate monetary relief claims under ERISA Section 502(a)(2). Defendants facing these lawsuits can argue that the individualized nature of defined contribution accounts defeats the commonality required to bind all participants without their express consent. The decision forces plaintiffs to reconsider how they structure their complaints and certification motions when seeking monetary damages for plan losses.
Who Should Care
For lawyers
Defense counsel representing plan sponsors and fiduciaries will use this decision to resist mandatory class certification in defined contribution disputes. The appellate court's focus on commonality provides a framework to argue that individualized investment choices and varying account balances defeat the cohesion necessary for a no opt-out class. Plaintiffs' attorneys must recalibrate their certification strategies, potentially abandoning mandatory class theories in favor of traditional opt-out classes when seeking monetary relief under ERISA Section 502(a)(2). This shift requires plaintiffs to account for the administrative costs of providing notice to class members and the strategic implications of participants electing to opt out. Litigators must carefully evaluate the specific characteristics of the defined contribution plan at issue to determine whether commonality can be established under the Fourth Circuit's clarified standards.
For consumers and plan participants
Employees who invest in workplace defined contribution plans hold individual accounts that grow or shrink based on their specific investment selections. When a lawsuit alleges that plan managers breached their duties, the financial impact varies widely from worker to worker. A mandatory class action forces all workers into the lawsuit, meaning they are bound by whatever settlement or trial verdict the lead plaintiffs secure, without the ability to walk away and file their own lawsuit. This appellate ruling protects the individual worker's right to control their legal options. By restricting mandatory classes, the court ensures that when money is on the line, workers will generally retain the right to opt out of the class action if they disagree with the litigation strategy or the proposed settlement. Plan participants gain more autonomy over their potential claims for monetary relief.
Legal Background
Federal class action rules divide certified classes into different categories based on the type of relief sought and the relationship among the class members. Some classes are mandatory, meaning class members cannot opt out. These are typically reserved for cases seeking broad injunctions or cases involving a limited fund where one plaintiff's victory would deplete the money available for everyone else. Other classes are designed for monetary damages. In these cases, the law generally requires that class members receive notice of the lawsuit and an opportunity to opt out.
ERISA Section 502(a)(2) allows participants to sue fiduciaries on behalf of the retirement plan itself to recover losses caused by a breach of fiduciary duty. Because the statute authorizes recovery for the plan, plaintiffs historically argued that the relief is inherently collective. If a fiduciary restores lost money to the plan, that single act of restoration affects all participants simultaneously, justifying a mandatory class. However, defined contribution plans complicate this theory. Unlike traditional pensions where all assets sit in a single pool to pay defined benefits, defined contribution plans consist of individual accounts. A fiduciary breach might harm one participant's account severely while leaving another participant's account completely untouched. This tension between the plan-wide nature of an ERISA Section 502(a)(2) claim and the individualized nature of defined contribution accounts forms the core of the class certification dispute.
What the Court Did
Earlier this year, the Fourth Circuit Court of Appeals reversed the district court's order granting class certification in Trauernicht v. Genworth Financial Inc. The appellate panel scrutinized the use of mandatory, no opt-out classes in the specific context of ERISA defined contribution plan litigation.
In its review, the Fourth Circuit addressed the standards for commonality required to maintain a class action. The court determined that the district court erred in its commonality analysis when it certified the mandatory class. Because defined contribution plans involve individualized accounts, the appellate court found that the claims for monetary relief under ERISA Section 502(a)(2) did not possess the uniform characteristics necessary to force all participants into a single, non-opt-out class. The decision establishes that the mere fact that a claim is brought on behalf of the plan under Section 502(a)(2) does not automatically override the individualized differences among plan participants when monetary relief is at stake.
How It May Be Applied
The recent reversal in Trauernicht v. Genworth Financial Inc will likely prompt a reevaluation of class certification motions in pending and future ERISA litigation within the Fourth Circuit. District courts will apply stricter scrutiny to commonality arguments when plaintiffs seek mandatory classes for defined contribution plans.
Plaintiffs may respond by bifurcating their certification requests. They might seek a mandatory class solely for equitable relief while simultaneously seeking a standard opt-out class for any monetary relief claims under ERISA Section 502(a)(2). This hybrid approach would require plaintiffs to shoulder the costs of notice for the monetary portion of the case while preserving the ability of individual participants to opt out of the damages phase. Additionally, defendants will likely cite this decision to challenge commonality even in opt-out classes, arguing that the individualized nature of defined contribution accounts makes aggregate litigation fundamentally unmanageable.
Certification Types in ERISA Litigation
| Class Type | Opt-Out Rights | Typical Relief Sought | Impact of Fourth Circuit Decision |
|---|---|---|---|
| Mandatory Class | None | Injunctions, Plan-wide structural changes | Restricted for defined contribution monetary claims |
| Opt-Out Class | Yes | Monetary damages, Individual account restoration | Likely becomes the standard for Section 502(a)(2) monetary relief |
Plain-English Summary
When workers sue their employer's retirement plan for mismanagement, they often try to group everyone into one massive lawsuit. A mandatory class action means no worker is allowed to leave the group; everyone is stuck with the final result. The Fourth Circuit decided that because modern retirement accounts are individualized, meaning each worker chooses their own investments and suffers different losses, it is improper to force everyone into a mandatory class when fighting over monetary compensation. This ruling ensures that workers retain the right to control their own legal claims when seeking financial recovery.
This article is general legal information and commentary about legal developments. It is not legal advice, does not address your specific situation, and is not a substitute for advice from a licensed attorney. Reading this article and contacting us through this website do not create an attorney-client relationship.
Sources & authorities
- Trauernicht v. Genworth Financial Inc., No. 24-1880 (4th Cir. Mar. 10, 2026) (published) — class certification reversed and vacated — source
Further reading
Additional perspectives (a link is not an endorsement):