Large employers like JP Morgan Chase, Johnson & Johnson, Wells Fargo, and others have recently faced lawsuits for breaching their fiduciary responsibilities to properly manage their benefit plans. Plaintiff complaints allege plan sponsors are not paying attention to massively overpriced benefits and are ignoring conflicts of interest, thus breaching their fiduciary obligations to the detriment of employees and former employees.
Applies To:
All employers sponsoring employee benefits.
Go Deeper:
Plaintiffs are identifying numerous examples where the plan sponsor allegedly allowed egregious overspending on prescription drugs that can potentially be purchased for a tiny fraction of what the plan is actually paying. In some cases, the plaintiffs are able to call into question whether some of that egregious overspending is profiting a service provider engaged with the plan, which could be a conflict of interest.
Plan sponsors are fiduciaries of their benefit plans and must act with the skill, prudence, diligence, and care to always operate in the sole interest of participants and beneficiaries. Yet, plan sponsors may not always know or understand the detailed inner workings of price negotiations for covered services and drugs, and some employees are calling employers out for failing to obtain the knowledge necessary to appropriately oversee the plan and its service providers. They argue this is costing the plan, employer, participants, and beneficiaries exceedingly more money than is reasonable to pay. They are also arguing that overspending on health benefits is translating to suppressed wage growth and to exorbitant costs for COBRA and retiree participant premiums.
So far, the J&J and Wells Fargo lawsuits have been dismissed due to the court finding the plaintiffs lack standing, which is the legal argument that they cannot prove they have suffered a concrete injury as a result of the plan fiduciary’s actions (or alleged lack of prudent actions). However, these dismissals are without prejudice, meaning the cases could be reopened. If the plaintiffs choose to reopen the case, they will have to show they suffered a concrete injury in order to avoid a dismissal based on lack of standing. This has in fact just happened with the J&J case, with a complaint filed to reopen the case almost a year after it was initially filed.
Practical Implications to Employers:
As you can tell from the fact that the J&J case started a year ago and was just amended this month to re-file it, these lawsuits take a very long time to move through the courts. For now, employers will want to consider ways to document fiduciary decisions, considerations/deliberations, contract reviews, and other documentation their counsel would like them to maintain to have a strong defense in case anyone should complain that the health plan fiduciaries are not meeting their fiduciary obligations to the plan’s participants and beneficiaries. Even something as simple as staying fully insured for a long time could be risky when the employer’s population is stable and alternative funding options could yield cost-savings or other benefits to participants.
And remember, while these lawsuits have focused on health plans, employers are fiduciaries with respect to all their benefit plans. So, they should be diligently ensuring benefits are adequate, keeping up with the needs of modern workers and families, do not contain avoidable language that unnecessarily harms individuals, and are priced appropriately.
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