History of 401(k) Plan Excessive Fee Cases. Once the Department of Labor's participant fee disclosure rules for retirement plans became effective in 2012, the plaintiffs' bar latched onto recordkeeping and investment fees paid by 401(k) plans, and the number of lawsuits claiming excessive fees exploded. In the early cases, participants filed lawsuits against the plans' recordkeepers claiming that they overcharged the plans. However, as courts consistently ruled that the recordkeepers were not fiduciaries and had no duty to charge low or even reasonable fees, the focus of these lawsuits pivoted to the plan fiduciaries. Now, hundreds of fee cases are filed each year against 401(k) fiduciaries claiming they violated their fiduciary duties by allowing 401(k) plans to pay excessive fees that harmed participants' retirement savings.
Group Health Plan Excessive Fee Case. A recent lawsuit against the fiduciaries of a group health plan highlights what might be the next wave of fee litigation related to employee benefit plans. In Lewandowski v. Johnson and Johnson, et. al, participants allege the fiduciaries of the Johnson & Johnson (J&J) group health plan violated their fiduciary duties under ERISA by allowing the group health plan and its participants to pay exorbitant amounts for prescription drugs.
In particular, the plaintiffs assert J&J's group health plan fiduciaries failed to:
- Make a diligent effort to compare alternative service providers for its prescription drug program;
- Seek the lowest level of costs for the services provided;
- Monitor plan expenses to ensure they remained reasonable; and
- Act prudently by entering into an agreement with a pharmacy benefit manager ("PBM") that allowed the PBM to charge the plan "extraordinary" costs for dozens of drugs as compared to other market options.
The participants provided a number of examples to support their allegations. For instance, the participants allege that the PBM charged the J&J health plan over $10,000 for a 90-day supply of a generic drug used to treat multiple sclerosis, when the same 90-day supply of the drug was available with no insurance coverage at a variety of retail pharmacies for less than $45, resulting in a PBM markup of almost 500%. The participants seek various remedies for this and other alleged breaches and seek to hold the fiduciaries personally liable for allowing the plan to pay a higher amount than the lowest possible cost for every drug covered by the group health plan.
In light of the J&J case and recent uptick in group health plan litigation alleging breach of fiduciary duty, group health plan fiduciaries may wish to evaluate their current fiduciary governance structure to ensure a process is in place for selecting and monitoring group health plan service providers. This may include a renewed focus on contract terms and monitoring group health plan costs, especially prescription drug costs and the amounts paid to PBMs and the plans' consultants and administrators, in order to ensure such costs remain reasonable. Careful documentation of these efforts and deliberations also will be important.
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