ERISA Litigation Against Employers Expands From Prescription Drug Benefits To Voluntary Insurance

Employer-sponsored prescription drug benefits have drawn scrutiny through lawsuits alleging that employers failed to protect their health plans and employees from excessive pharmacy benefit manager (PBM) charges. A recently filed class-action lawsuit against Macy’s raises a related concern involving a different category of employee benefits: voluntary supplemental insurance. Although the products and payment arrangements differ, the underlying question is familiar. Did the employer adequately evaluate the compensation paid to intermediaries and the value employees received?

In Munson v. Macy’s, Inc., a former employee challenges the selection and administration of accident, critical illness and hospital indemnity insurance. The complaint names Macy’s and three insurance broker entities and asserts claims under the Employee Retirement Income Security Act of 1974 (ERISA). Its allegations warrant attention from employers already reviewing their prescription drug benefits, particularly those assuming that employee-funded benefits fall outside their fiduciary responsibilities.

The Allegations Against Macy’s

According to the complaint, Macy’s employees paid approximately $36.1 million in supplemental insurance premiums during the 2019 through 2024 plan years. Approximately $13.2 million, or 36.7 percent, allegedly went toward broker commissions and fees. The plaintiff contends that this compensation was embedded in premiums deducted from employees’ wages and substantially exceeded compensation associated with comparable arrangements.

The complaint highlights two periods of elevated compensation. It alleges that commissions and fees consumed 50.8 percent of premiums in the 2019 plan year, including 65.1 percent on the critical illness contract, before declining to 22.8 percent by 2021. It then alleges that compensation rose to 62.8 percent in 2022, when coverage moved from an Allstate subsidiary to an Aflac subsidiary, before declining to 37.9 percent and 22.8 percent in the following two years. The plaintiff characterizes this pattern as evidence of “heaped” commissions, involving substantial initial compensation followed by lower renewal payments and that switching carriers generated another substantial initial payout.

The plaintiff also challenges statements in Macy’s enrollment materials that coverage was offered “at discounted group rates” and alleges that Macy’s failed to question unreasonable compensation and potential conflicts involving its insurance broker.

These are allegations, not judicial findings. A commission increase does not, by itself, establish improper carrier switching, unreasonable premiums or a fiduciary breach. The services provided, coverage terms, compensation arrangements and reasons for the transition will matter.

Why Voluntary Benefits Can Still Be Subject to ERISA

Voluntary benefits generally permit employees to elect supplemental coverage, often at their own expense. Accident insurance may pay scheduled benefits following covered injuries, critical illness insurance may provide payments upon specified diagnoses and hospital indemnity insurance may pay fixed amounts for covered hospital stays. These products supplement other coverage and differ from a self-funded prescription drug program, under which the plan bears responsibility for covered drug claims.

However, “voluntary” describes an employee’s enrollment choice; it does not automatically establish an exemption from ERISA. The Department of Labor’s safe harbor under 29 C.F.R. § 2510.3-1(j) generally requires no employer contributions, completely voluntary participation, a limited employer role without endorsement and no employer consideration beyond permissible reimbursement for actual payroll deduction services. All requirements must be satisfied.

In Munson, the plaintiff alleges that Macy’s selected carriers and its broker, integrated coverage into its benefits infrastructure and promoted the products through employer-branded enrollment materials. Those allegations are relevant to whether Macy’s merely facilitated access or established and maintained an ERISA plan. Failure to satisfy the safe harbor does not automatically establish ERISA coverage; the arrangement must still meet the statutory requirements. Nevertheless, employers cannot assume that collecting premiums entirely from employees eliminates ERISA exposure.

Breach of Fiduciary Duty Claims Across Both Types of Litigation

Munson resembles cases such as Lewandowski v. Johnson & Johnson and Navarro v. Wells Fargo & Company because it challenges the employer’s oversight of benefit arrangements and intermediary compensation. The prescription drug cases allege that employers allowed excessive drug costs or administrative charges through their PBM arrangements. Munson alleges that the employer permitted excessive broker compensation to increase the price of supplemental insurance.

Munson expressly alleges breaches of the duties of prudence and loyalty under ERISA § 404(a). The prudence allegations concern the investigation of premiums, commissions and alternatives. The loyalty allegations concern potentially divided interests arising from Macy’s other relationships with its insurance broker; the complaint also challenges allegedly misleading enrollment representations. A corporate relationship alone does not establish disloyalty, but its effect on benefit decisions warrants examination.

The common issue is whether fiduciaries investigated the arrangement, evaluated available alternatives, understood financial incentives and monitored performance. Engaging an established broker or PBM does not replace the employer’s responsibility to prudently select and monitor service providers when acting as an ERISA fiduciary. Conversely, ERISA does not require selecting the cheapest available option regardless of service quality or coverage.

The distinction between business decisions and fiduciary conduct also matters. Employers generally act in a settlor capacity when deciding whether to establish a plan or how to design benefits. Fiduciary obligations attach to particular functions involving plan management or administration. A plaintiff must connect the challenged conduct to a fiduciary responsibility; the employer’s status as plan sponsor alone does not make every benefits decision actionable.

A Potentially More Direct Theory of Employee Injury

One significant difference concerns standing. In the prescription drug litigation, plaintiffs have faced difficulty connecting allegedly excessive plan spending to a concrete personal injury. A plan’s overpayment does not necessarily establish that a particular employee paid more, especially where the employer retains discretion over contributions or an employee’s annual out-of-pocket maximum affects the claimed loss.

The district court in Lewandowski dismissed the fiduciary breach claims for lack of Article III standing, and the district court in Navarro likewise dismissed the amended complaint on standing grounds. Those rulings addressed whether the plaintiffs adequately established a personal injury, causation and redressability. They should not be treated as findings that the challenged PBM arrangements were prudent.

Munson attempts to allege a shorter causal chain: the broker demanded compensation, the carrier incorporated it into the premium and the employee paid that premium through payroll deductions. This may provide a more direct injury theory than alleging that reduced aggregate plan spending would have caused an employer to lower employee contributions. It remains necessary, however, to substantiate that unreasonable compensation increased the plaintiff’s own premium and that the requested relief would redress her injury.

Different Evidence and Different Compensation Structures

Prescription drug benefit disputes require examination of drug-level claims, rebates, spread pricing, administrative charges, pharmacy networks and contractual definitions. A seemingly favorable discount or rebate guarantee may provide an incomplete picture of the plan’s actual costs. Comparisons also must account for benefit design, utilization and the services included.

Munson instead relies heavily on Form 5500 Schedule A information concerning premiums and intermediary compensation. The complaint identifies other employers’ arrangements as benchmarks for allegedly lower compensation. Such comparisons may help identify issues warranting investigation, but reported percentages require context. Differences in coverage, enrollment services, group characteristics, compensation timing and separately paid fees can affect whether another arrangement provides a meaningful comparison.

The complaint’s footnote also states that its figures generally reflect total reported intermediary compensation across brokers. That qualification matters when attributing particular payments to particular defendants. Likewise, a high commission percentage does not independently establish the actual claims loss ratio or prove that another product’s regulatory benchmark governs the challenged policy.

Claims Against the Broker and Practical Implications

Munson includes prohibited transaction allegations against Macy’s and seeks equitable relief against the insurance broker entities for alleged knowing participation. This extends the inquiry beyond whether the employer conducted a prudent review to whether compensation arrangements involved prohibited dealings and whether an exemption applies. Service-provider compensation is not inherently unlawful; the applicable exemption requirements, including reasonableness where required, must be examined.

The broker claims also illustrate why fiduciary status and available remedies require separate analysis. A service provider does not become an ERISA fiduciary merely by receiving compensation. Claims for equitable relief against a nonfiduciary depend on the underlying violation, the defendant’s involvement and knowledge and the relief available under ERISA.

For employers, the practical response is to review voluntary benefits alongside other employee benefit arrangements. That review should establish each program’s ERISA status, identify the responsible decision-makers and examine compensation beyond the amount shown on an employer’s invoice. Carrier-paid commissions, renewal compensation, placement incentives and relationships involving other corporate services deserve attention.

For prescription drug benefits, employers should similarly examine the PBM’s total compensation, contractual audit rights and access to meaningful claims and rebate information. In both settings, fiduciaries should document why the arrangement was selected, how competing options were evaluated and what supports continued retention. Munson underscores that an employee-funded benefit can still require serious employer oversight. A defensible process begins with understanding who is paid, how that payment affects employees and whether the services justify the cost.