With healthcare costs steadily rising and public pressure mounting around pharmaceutical pricing practices, employer sponsored group health plans are facing heightened legal scrutiny. Federal initiatives, including those launched under the Trump administration, have aimed to lower drug costs and increase pricing transparency, drawing attention to the roles of pharmacy benefit managers (PBMs). As these policy efforts continue, litigation is emerging that challenges how employers fulfill their fiduciary obligations under the Employee Retirement Income Security Act of 1974 (ERISA).
For employers who sponsor group health plans, it is critical to understand how ERISA fiduciary duties apply to PBM selection, oversight and cost containment. As the courts begin to adjudicate these cases, the outcomes may significantly alter how employers manage and monitor prescription drug benefits.
Background: ERISA Fiduciary Responsibilities
ERISA imposes high fiduciary standards on those who manage or control plan assets. While these duties have traditionally been enforced in the context of retirement plans, they apply equally to health and welfare benefits, although historically, litigation has focused more on the former. Fiduciary responsibility will require that the plan is administered in the best interest of the plan participants and that the fiduciary acts solely on behalf of the plan. Key fiduciary duties include:
- Loyalty: Acting solely in the interest of participants and their beneficiaries, with the exclusive purpose of providing benefits or financing reasonable plan expenses.
- Prudence: Using care, skill, and diligence in managing the plan, including oversight of third-party administrators (TPAs) and vendors. Focusing on the quality of the decision-making process.
- Reasonableness: Ensuring the plan pays only reasonable and necessary administrative and service fees.
- Adherence: Following the terms of the plan documents consistently.
As prescription drug spending becomes a larger portion of healthcare costs, courts and regulators are applying these standards to how employers manage PBM relationships. The recent focus of these duties as it relates to prescription drug benefits means employers must actively manage their PBM arrangements. Outsourcing plan operations to third party vendors does not shield plan sponsors from ERISA liability.
Recent Litigation
In recent years, there have been a series of lawsuits filed by plan participants and beneficiaries alleging that plan sponsors failed to properly oversee PBMs and control prescription drug costs. These cases center on allegations that employers and TPAs did not act prudently in negotiating or monitoring PBM contracts, thereby violating their ERISA fiduciary duties. Below is a high-level summary of recent court cases:
- Seth Stern v. JPMorgan Chase & Co. (Filed 2025)
The plaintiff alleges that JPMorgan Chase breached its fiduciary duties by failing to monitor and control prescription drug costs, allowing the plan to pay excessively inflated prescription drug prices, which resulted in significant financial harm to the participants. The lawsuit also claims JPMorgan did not act prudently in overseeing its PBM, which caused participants to pay amounts for generic drugs at drastically higher prices than in the marketplace. Plaintiffs allege that JPMorgan had access to market benchmarks and claims data but took no correction action. This case is ongoing. JPMorgan’s motion to dismiss was partially denied in early 2025, and the case is now in discovery. This lawsuit could establish precedent on the duty to monitor PBMs under ERISA. - Navarro v. Wells Fargo & Co. (Filed: 2023)
The plaintiffs claimed that Wells Fargo breached its fiduciary duties by failing to monitor its PBM effectively and allowed unreasonable drug pricing to persist, harming participants. The complaint accuses the plan fiduciaries of engaging in a prohibited transaction because Wells Fargo paid extremely high administrative fees to the PBM. These administrative fees greatly exceed the fees paid to the PBM by plans comparable in size (or smaller than) Wells Fargo’s plan, therefore, the compensation was excessive and resulted in a prohibited transaction. The complaint alleges that the plaintiffs were harmed by these fiduciary breaches by having to pay higher premiums and out-of-pocket costs. The court dismissed the case without prejudice due to lack of participant standing, but the plaintiffs may refile. - Lewandowski v. Johnson & Johnson (Initially Filed: 2024, Amended Complaint Filed: 2025)
In early 2024, plaintiff filed a class action lawsuit against Johnson & Johnson alleging that the plan fiduciaries mismanaged the prescription drug benefit of the company’s employer sponsored group health plan, resulting in economic harm and caused participants to pay higher premiums and out of pocket expenses. The initial complaint alleged that the plan fiduciaries did not meet their fiduciary obligations because they failed to engage in a prudent and reasoned decision-making process before entering into the PBM contract that included such high costs. The court partially dismissed the original complaint due to speculative harm. An amended complaint is pending, and a new motion to dismiss has been filed. For more information, see our article Johnson & Johnson Case Signals Importance of Employer Fiduciary Obligations.
These cases collectively illustrate the evolving legal scrutiny on employers’ roles in prescription drug cost management.
Key Themes Emerging from the Lawsuits
- Due Diligence is Essential – Courts expect employers to actively monitor PBM pricing, fee structures, and performance. This includes using benchmarking data, evaluating rebate arrangements and auditing service terms.
- Transparency Reduces Risk – Opaque pricing and hidden fees create liability. Employers must understand and demand full disclosure of how PBMs are compensated, including any spread pricing or rebate retention practices.
- Litigation Risk is Growing – There has been an uptick in class action lawsuits. If courts certify classes in these lawsuits, the scale of liability could grow rapidly, which would encompass a wide participant group, resulting in significant financial exposure.
Employer Impact
These lawsuits are reshaping how courts interpret fiduciary duties under ERISA in the context of prescription drug benefits. Plaintiffs across these cases claim that employers/plan sponsors failed to monitor PBM contracts, ignored excessive pricing, and did not ensure cost-effectiveness for plan participants.
Courts have shown an increased willingness to let these cases proceed, reinforcing that ERISA requires active and ongoing oversight and not just passive reliance on third-party vendors. These cases also stress the importance of contract transparency, competitive bidding, and audit rights in PBM agreements. If courts rule in favor of plaintiffs in the above-mentioned cases, employers may face not only legal liability, but also financial risk. Together these cases show that both passive mismanagement and active disregard for cost controls can give rise to ERISA liability.
To mitigate exposure, employers who sponsor group health plans should treat prescription drug oversight with the same attention as retirement plan fiduciary obligations. Documenting oversight efforts, enforcing audit rights and proactively monitoring plan service providers are now essential steps in meeting fiduciary obligations.
Connect with a Sequoia consultant to learn how Sequoia’s compliance services are integrated in our benefits services and tailored solutions. And if you’re already a Sequoia client, stay on top of your employer obligations with your Compliance Checklist that highlights important compliance dates, action items, and resources.
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