Employee class action lawsuits are evolving. In 2024, excessive fee litigation surged by 35%, signaling a second wave of claims that are broader, more creative and increasingly targeting mid-sized employers. Historically, excessive fee lawsuits focused on large retirement plans with over $1 billion in assets. With many of those already litigated, plaintiff firms are now turning their attention toward mid-sized plans. As the legal landscape shifts, employers must stay vigilant and proactive in managing their employee benefit plans.
Evolving Claims: Beyond Traditional Excessive Fees
The latest lawsuits go beyond the classic fiduciary excessive fee claims, challenging plan design and monitoring processes. At the heart of these lawsuits is the Employee Retirement Income Security Act of 1974 (ERISA), which outlines the fiduciary responsibilities of employers managing benefit plans. Fiduciaries are legally and ethically obligated to act in the best interests of plan participants. When oversight is lacking, litigation risk rises. Recent claims have included:
- Forfeiture misuse: Allegations that plan fiduciaries used forfeited assets to offset employer contributions instead of reducing participant contributions.
- Wellness program, fee and ACA fraud: Lawsuits claiming fraud related to wellness programs, excessive fees charged by defined benefit plan providers and compliance with the Affordable Care Act (ACA).
- Prescription drug pricing: Lawsuits alleging employers failed to negotiate lower drug prices, resulting in inflated costs for employees.
Prescription Drug Plans Under Scrutiny
Employee benefit plans are now facing increased scrutiny, particularly around prescription drug pricing. Several employee groups have claimed that employers failed to secure competitive pricing, resulting in higher costs for participants. Two high-profile lawsuits, one against Johnson & Johnson and one against Wells Fargo, allege that employer-sponsored plans paid inflated prices for prescription drugs. These cases are comparable to earlier excessive fee lawsuits targeting defined contribution retirement plans.
Traditionally, employers rely on Pharmacy Benefit Managers (PBMs) to negotiate drug prices and manage payments. Patients pay premiums, deductibles and co-pays, while PBMs cover the remaining cost. However, some lawsuits claim PBMs are marking up generic medications by as much as 400%.
While PBMs have faced increasing government investigation, lawsuits are now targeting employers for failing to oversee PBM practices effectively. In some cases, employees paid more for prescriptions than uninsured individuals, despite lower-cost alternatives being available. As with excessive fee litigation, these claims are expected to expand beyond the largest PBMs to include smaller providers.
What Employers Can Do: Proactive Risk Management
To reduce exposure to these evolving legal risks, employers must take a proactive approach to plan oversight.
1. Review Your Plan Design with a Fiduciary Broker
Work with a fiduciary-focused broker to review your current plan design. A broker who is CEFEX-certified follows a Global Fiduciary Standard of Excellence and undergoes annual third-party audits. This certification demonstrates a commitment to acting in your best interest and can help defend against claims while improving your fiduciary insurance terms.
We are a CEFEX-certified brokerage firm and can assist in reviewing your fiduciary practices, monitoring your plans and strengthening your defense against potential claims.
2. Evaluate Your Pharmacy Benefit Manager (PBM)
Ensure your PBM is securing the best possible pricing for your employees. Consider integrating prescription discount programs like GoodRx or HaloScrips or exploring alternative PBM arrangements. Transparency and accountability in drug pricing are critical.
We offer tools to help you evaluate your processes to demonstrate fiduciary oversight and due diligence.
Reach Out to an Advisor
As plaintiff firms become more innovative, the scope of employee class action lawsuits continues to expand. Employers must adapt by enhancing oversight, improving transparency and working with experienced advisors to mitigate risk.
Contact us to learn how we can support your organization and help you stay prepared for the ever-evolving legal landscape.