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On February 27, 2026, a federal court in New York granted a motion to dismiss a tobacco premium surcharge lawsuit. This is the now the third such lawsuit that has been dismissed, in its entirety, at the pleadings stage.
As previously described here and here, plaintiffs have filed more than 50 lawsuits against employers challenging wellness programs that impose a health premium surcharge on participants who use tobacco products. The complaints allege that group health plans that provide a lower premium for enrollees who either certify that they do not use tobacco products or agree to participate in a tobacco cessation course violate the HIPAA wellness program requirements, which were incorporated into ERISA by the Patient Protection and Affordable Care Act.
The key issue in these cases is whether an employer can prospectively remove the premium surcharge when a participant completes a wellness program's alternative standard (typically a tobacco premium cessation course). Plaintiffs have argued that because ERISA (and the implementing wellness program regulation) requires that employers provide participants who complete a wellness program's alternative standard with the wellness program's "full reward," participants who complete a tobacco cessation course should be reimbursed all premium surcharge amounts paid for the full plan year.
In Noel v. Pepsico, Inc., a court in the United States District Court for the Southern District of New York squarely rejected the plaintiff's allegations. The court held that participants who completed the wellness program's alternative standard—a four-week tobacco cessation course—received the wellness program's "full reward." Under the employer's wellness program, participants who completed the tobacco cessation course between May 1 and November 30 were exempt from paying the premium surcharge for the entirety of the following plan year. Participants who did not complete the course within this time period could still complete the course at any point during the plan year, but for these participants, the premium surcharge was only removed prospectively.
The court expressed doubt that ERISA's requirement that participants who complete a wellness program's alternative standard receive the "full reward" requires reimbursement of all premium surcharges paid for the full plan year, as the plaintiff claimed. In any event, the court held that the defendants' program met this standard because it allowed participants to avoid the entire premium surcharge amount for the full plan year by completing the tobacco cessation course between May 1 and November 30 of the prior plan year. The Pepsico court joined a court in the Central District of Illinois that similarly held that a wellness program with a "one-year offset"—the plan allowed a participant to avoid the premium surcharge for the entire plan year where the participant completed a tobacco cessation course during the prior plan year—complies with ERISA.
The Pepsico court also rejected the plaintiff's argument that participants who completed the tobacco cessation course during the plan year should be reimbursed all premium surcharges paid for the full plan year because ERISA only requires that employers provide one opportunity per year for participants to qualify for the wellness program's reward.
The Pepsico court also held that the plaintiff's fiduciary breach theory—that the defendants used the premium surcharges to offset their contributions to the plan—failed to state a viable claim for two reasons. First, the court held that defendants were acting as plan settlors—and not ERISA fiduciaries—when designing the wellness program and then implementing it pursuant to the plan's terms. Second, the court held that the plaintiff failed to allege the type of injury required to pursue relief under ERISA section 502(a)(2), which only authorizes claims for losses to the plan as a whole. The court held that unpaid employer contributions are not plan assets unless the governing plan documents provide otherwise. Because the plaintiff did not assert such allegations, the court found that she did not allege an injury to the plan as a whole—and instead alleged only an injury to participants who paid the premium surcharges.
The Pepsico decision marks an important development in tobacco premium surcharge litigation. This is the second court to hold that a wellness program with a "one-year offset" complies with ERISA. It also is the second court to hold that an employer acts as a settlor—and not an ERISA fiduciary—when designing and implementing a wellness program. We will continue to monitor this evolving area of ERISA class action litigation, as motions to dismiss substantially similar complaints are pending in federal district courts across the country.
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