Rising Legal Issues Surrounding Group Health Plan Fiduciaries

The Employee Retirement Income Security Act of 1974 (ERISA) includes strict standards of conduct for fiduciaries, those who manage employee benefit plans and their assets. ERISA requires fiduciaries to discharge their duties regarding employee benefit plans:

• Solely in the interest of plan participants and beneficiaries;
• For the exclusive purpose of providing plan benefits or for defraying reasonable expenses of plan administration; and
• With the care, skill, prudence and diligence that a prudent person in similar circumstances would use.

The duty to act prudently is one of a fiduciary’s central responsibilities.

Enforcement of ERISA’s strict standards of fiduciary conduct has traditionally been reserved for retirement plan sponsors.

However, a new class action lawsuit highlights the importance of employers’ adherence to their fiduciary duties when managing their group health plans. The lawsuit against Johnson & Johnson alleges the company violated its ERISA fiduciary duties by mismanaging its prescription drug benefit, which cost the health plan and participants millions of dollars. It serves as a reminder to employers that they must prudently select and monitor plan service providers, such as pharmacy benefit managers (PBMs).

Although it is the first case of its kind, more fiduciary litigation involving the management of prescription drug benefits is expected as the PBM industry faces increasing scrutiny and new transparency laws provide employees with more information regarding health care costs.