Recent litigation and agency settlements have reminded employers sponsoring employee benefit plans under ERISA that they are fiduciaries by definition (and their advisors might be functional fiduciaries).  That means that they owe a heightened duty of care to the plans, and more importantly, to the beneficiaries of those plans. Knowing that, employers can take steps to mitigate potential breaches of their fiduciary duty.

Background

Qualified retirement plans have been the subject of a spate of lawsuits over the years, alleging various violations of fiduciary duties by the plan sponsors and resulting in favorable settlements for the plan participants. Many of the suits were "excessive fee" claims that argued the fiduciary did not take sufficient care to avoid those excessive fees. Those claims seem to have slowed down recently, as employers have taken steps to monitor the fiduciary process leading to the decisions regarding the advisor fees.

Related: Fiduciary-minded benefits: the roles and responsibilities of advisors 

Until recently, welfare benefit plans, including group medical plans, have avoided litigation more successfully. There have been lawsuits, but not with the same frequency as there has been with respect to retirement plans. Perhaps the absence of potential punitive damage awards made welfare plans less attractive as targets to plaintiffs' attorneys.  In general, the damages won in court would be the benefits owed under the plan (although it has been possible for a court to award attorney's fees).  Recent lawsuits and agency actions might be signs of more active future litigation against plan sponsors as fiduciaries of their plans.

Recent fiduciary lawsuits and agency activity

Johnson & Johnson – An employee of Johnson & Johnson sued the company and the company's Pension & Benefits Committee and individual members. The lawsuit asserts that they violated their fiduciary duties to the company's health plans by not negotiating better prices for generic specialty drugs. The complaint asserts that the J&J health care plan paid more for several drugs than was necessary because, the plaintiff claimed, lower prices were available at various retail outlets than the plan paid via its PBM's (Express Scripts) formulary. The complaint alleges that the failure to negotiate caused the plan participants to pay more than necessary for the drugs in the plan and even depressed wages for the employees due to the increased costs for prescription drugs being paid by the plan.