February 13, 2024Client Alert

Emerging ERISA Trend: Excessive Fee and Expenditure Litigation Against Employer-Sponsored Health Plans

Over the past two decades, hundreds of class action lawsuits have been filed against ERISA retirement plan fiduciaries alleging that a lack of oversight and imprudent processes caused plan participants to pay excessive fees for investment options as well as recordkeeping and investment management services. Now, new health plan disclosure requirements and transparency laws have laid the groundwork for similar lawsuits against employer-sponsored health plans focused on plan expenditures and fees.

As an example, on February 5, 2024, a current employee filed a suit against Johnson & Johnson, its Pension and Benefits Committee, and individual members of the Pension and Benefits Committee (collectively the “Defendants”) seeking class-action status. The plaintiff alleges that the Defendants breached their fiduciary duties under the Employee Retirement Investment and Security Act of 1974 (“ERISA”) and mismanaged Johnson & Johnson’s prescription-drug benefits program. According to the complaint, the plaintiff alleges that the Defendants failed to monitor their pharmacy benefit manager, which led to millions of dollars in excessive plan costs, harming employees and their dependents.

ERISA Section 404(a)(1) imposes on plan fiduciaries a duty to act prudently and solely in the interests of participants and beneficiaries when managing and administering employee benefit plans and the assets of those plans. The health plan fee litigation is a developing area, and it is an indication of the increased importance being placed on health plan compliance. Health plan fiduciaries should ensure they have the proper processes in place to comply with ERISA’s fiduciary duties, including monitoring fees and expenses. Because health plan structures and benefits change more frequently than on the retirement side, developing these proper processes may be more challenging and may involve stakeholders different than the usual retirement plan fiduciaries.

The Johnson & Johnson lawsuit is likely only the beginning as employers face rising legal risk over how they manage employer-sponsored health plan costs in a trillion-dollar industry. Plan sponsors should consult with their benefits counsel to make sure they are fulfilling their obligations and mitigating risks.

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