The legal framework for ERISA fiduciary duty does not distinguish between retirement plans and health plans. Both are employee benefit plans covered by the statute; both impose on plan sponsors a duty of prudence, a duty of loyalty, and a duty to act in the sole interest of plan participants. The enforcement histories, however, are barely recognizable as products of the same legal regime. Retirement plan fiduciary litigation has produced billions of dollars in settlements, extensive regulatory guidance, and a pervasive compliance culture that has transformed 401(k) fee structures over twenty years. Health plan fiduciary enforcement has produced a handful of cases, limited regulatory guidance, and a contracting environment in which intermediaries routinely retain undisclosed compensation from plan assets without triggering meaningful legal consequence.
The Johnson & Johnson Decision and Its Implications
The Third Circuit’s 2024 decision in Lewandowski v. Johnson & Johnson — in which a federal appellate court allowed an ERISA health plan fiduciary lawsuit to proceed past the motion to dismiss stage — was significant precisely because it was remarkable. Plan participants alleged that J&J, as the plan sponsor, failed to exercise prudent oversight of its PBM relationship and allowed the plan to pay inflated prices for prescription drugs that were available at materially lower cost through alternative channels. The court’s willingness to engage the merits of that claim — rather than dismissing it as a matter outside ERISA’s fiduciary scope — created a legal precedent that other plaintiff attorneys immediately noticed. The litigation wave that follows may do more to reform employer pharmacy contracting than a decade of voluntary transparency initiatives.
Why the Enforcement Gap Exists
The enforcement gap between retirement and health plan fiduciary duty reflects several interacting factors. Retirement plan fees are disclosed in standardized forms that allow for meaningful comparison and compliance monitoring; health plan costs are distributed across multiple vendors, embedded in complex contracts, and not subject to equivalent disclosure requirements. Retirement plan participants have clear standing to challenge fee structures because their losses are directly quantifiable as a reduction in account value; health plan participants face conceptually identical but practically harder causation and damages arguments. And the plaintiffs’ bar has had less financial incentive to develop health plan fiduciary litigation because the legal theories are less mature and the defense bar’s first-mover arguments are stronger.
The Consolidated Appropriations Act’s disclosure requirements for health plan service providers have created a new regulatory architecture that partially addresses the information problem: plan sponsors now have a legal right to receive detailed compensation disclosures from their PBMs and other service providers, and the failure of a service provider to make required disclosures may constitute a prohibited transaction under ERISA. Whether plan sponsors are actually using these disclosures to evaluate whether their intermediary relationships represent prudent fiduciary choices — or whether the disclosures are accumulating in HR files unreviewed — is the operational question that will determine whether the regulatory change matters.
The Prudence Standard Applied
What would genuinely prudent fiduciary management of an employer health plan look like, applied to pharmacy benefits with the same rigor that applies to 401(k) plan administration? It would include, at minimum: periodic competitive benchmarking of PBM contract economics against market standards; third-party audits of rebate calculations and pass-through rates; documented evaluation of formulary design decisions for consistency with plan participants’ clinical interests; and active oversight of specialty drug management programs. Very few employer health plans currently do all of these things. The gap between what fiduciary prudence arguably requires and what plan sponsors actually practice is substantial — and that gap is now the target of an emerging litigation theory that may prove more consequential for employer pharmacy economics than any legislative reform currently under consideration.
