Highlights
- In Williams v. Bally's Management Group LLC, the U.S. District Court for the District of Rhode Island dismissed a plaintiff's claims challenging the lawfulness of Bally's tobacco-free wellness program under the Employee Retirement Income Security Act of 1974 (ERISA). The court held that the plaintiff failed to state a claim that the increased insurance premium (i.e., surcharge) for tobacco-users who did not complete the tobacco cessation program, offered in connection with the wellness program, violated ERISA.
- This is the first decision granting a motion to dismiss in its entirety in an ERISA class action targeting companies that charge an additional insurance premium for participants who use tobacco products by claiming that the wellness programs violate ERISA's nondiscrimination test.
- The court's decision is a positive development for plan sponsors and fiduciaries. In particular, the court found that ERISA and applicable regulations do not require retroactive reimbursement of tobacco surcharges paid earlier in the plan year before a participant completes the tobacco cessation program.
- The court's decision underscores the importance of reviewing wellness programs to ensure compliance with ERISA and applicable regulations.
As discussed in a previous Holland & Knight alert, there has been a recent uptick in Employee Retirement Income Security Act of 1974 (ERISA) class actions challenging employers' tobacco-free wellness programs. Plaintiffs in these cases generally allege that the tobacco-free wellness programs are noncompliant with ERISA and that plan fiduciaries are violating their fiduciary duties when they impose and collect an increased insurance premium (i.e., surcharge) for participants who use tobacco products.
In Williams v. Bally's Management Group, LLC, a decision issued on Nov. 4, 2025,1 the U.S. District Court for the District of Rhode Island became the first court to dismiss an ERISA class action challenging a company's tobacco surcharge. The court dismissed the plaintiff's claims alleging that Bally's (the Company) violated the ERISA nondiscrimination provisions by imposing an unlawful tobacco surcharge on plan participants and alleging that the Company breached its ERISA fiduciary duty by imposing the tobacco surcharge. The court held that neither ERISA nor its implementing regulations requires retroactive reimbursement of previously paid tobacco surcharges. In addition, the court determined that the Company's plan documents satisfied the disclosure obligations with respect to the tobacco surcharge because they provided sufficient notice to participants of a reasonable alternative standard and the accommodation of physician recommendations.
The court also dismissed the plaintiff's fiduciary breach claims holding that the plaintiff failed to allege specific harm to the plan.
The Parties' Arguments
The plaintiff alleged that the Company's imposition of a tobacco surcharge violates ERISA and its implementing regulations because the plan did not provide the "full reward" to participants who completed the alternative standard by failing to retroactively reimburse participants who completed the tobacco cessation program after the beginning of the plan year.2 The plaintiff also alleged that the Company's plan materials insufficiently notified participants of the availability of a reasonable alternative standard for obtaining the full reward.3
With respect to her breach of fiduciary duty claim, the plaintiff alleged that the company breached its fiduciary duties as plan administrator by imposing an allegedly unlawful tobacco surcharge on participants to offset its own contributions to the plan, constituting a prohibited transaction under 29 U.S.C. § 1106.4
In its motion to dismiss the amended complaint, the Company argued that the tobacco surcharge was lawful and that the Company was not prohibited from using funds from the tobacco surcharge to pay plan benefits.5 The Company also argued that the plan materials regarding the availability of a reasonable alternative standard were sufficient as a matter of law, and they did, in fact, provide retroactive reimbursement for compliance with its tobacco cessation program – despite not being legally required to do so under ERISA or its implementing regulations, which require only that a "full reward" be provided to plan participants.6 Finally, the Company argued that the plaintiff failed to exhaust administrative remedies before filing suit.7
The Court's Decision
The most notable aspect of the court's decision is its holding that ERISA and its regulations do not require plan sponsors to provide retroactive reimbursement of previously paid surcharges. The court declined to read a "retroactive reimbursement requirement into the meaning of 'full reward' as provided by 42 U.S.C. § 300gg-4(j)(3)(D) and 29 C.F.R. § 2590.702(f)(4)(iv)."8 The court specifically agreed with the Company that "the terms 'discount ... of a premium' and 'absence of a surcharge' provided in 42 U.S.C. § 300gg-4(j)(3)(A) as possible rewards do not mandate a retroactive reimbursement of previously paid surcharges."9 To that end, the court noted:
Whether an individual who receives only a prospective "absence of a surcharge" halfway through the plan year obtains the same reward as an individual who did not have to pay the surcharge from the beginning of the year is a matter of perspective: while on the one hand the first individual received a different reward because that individual had to pay the tobacco surcharge up until the time they completed the program, on the other hand both receive the same reward of not being prospectively charged a tobacco surcharge.10
The court refused to interpret the statute to impose a retroactive reimbursement requirement for the tobacco surcharge due to this "statutory ambiguity."11
The court declined to defer to the U.S. Department of Labor's (DOL's) interpretation of the statute as requiring retroactive reimbursement. The court determined that deference was not required under the anti-parroting doctrine. The anti-parroting doctrine provides that a "court need not defer to an agency's interpretation of a parroting regulation because '[a]n agency does not acquire special authority to interpret its own words when, instead of using its expertise and experience to formulate a regulation, it has elected merely to paraphrase the statutory language.'"12 As applied to this case, the court found that the regulation at issue, 29 C.F.R. § 2590.702(f)(4)(iv), "simply repeats the statutory 'full reward' requirement found in 42 U.S.C. § 300gg-4(j)(3)(D)" and, thus, is not entitled to deference.13
With respect to ERISA's notice requirement regarding the availability of a "reasonable alternative standard" to the tobacco cessation program, the court held that the Company's statements in its Summary Plan Descriptions "comply with the statutory and regulatory notice requirements as a matter of law" particularly because "the description of the wellness program substantively matches the sample language – indeed, almost verbatim – provided by the DOL."14 With respect to benefit guides issued by the Company containing a mention of the availability of the tobacco cessation program, the court held "that those guides did not describe the terms of the wellness program in a way that would trigger the full notice requirements."15
The court dismissed the plaintiff's ERISA § 502(a)(2) fiduciary breach claim finding that the plaintiff lacked standing to assert this claim because she failed to adequately allege harm to the Plan. The court noted "the only injuries to the Plan (as opposed to participants in the Plan) alleged by Ms. Williams are speculative, contained in conclusory statements such as Bally's Management having pocketed the tobacco surcharge 'to the detriment of the Plan,' ... or that Bally's Management 'enriched itself at the expense of the Plan.'"16
Conclusions and Considerations
The Williams decision is a positive development for plan sponsors and fiduciaries. Critically, it supports the position that a "full reward" can be provided prospectively once a participant is tobacco-free or meets the reasonable alternative standard, without mandating retroactive refunds. In addition, the decision further underscores the need for well-drafted plan documents that address the reasonable alternative requirements.
Footnotes
1 No. CV 1:25-00147-MSM-PAS, 2025 WL 3078747 (D.R.I. Nov. 4, 2025).
2 Id. at *4.
3 Id.
4 Id.
5 Id.
6 Id.
7 Id.
8 Id.at *11.
9 Id.
10 Id.
11 Id.
12 Id.at *9 (citingGonzales v. Oregon, 546 U.S. 243, 244 (2006)).
13 Id. at *10.
14 Id.at *12.
15 Id. at *13.
16 Id. at *6.
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