ERISA Fiduciary Duty – Who is Responsible?

The proposed class action against Johnson and Johnson has shed light on the importance of the ERISA fiduciary duty of your benefits program. The recent lawsuit accuses the company of mismanaging prescription drug benefits, which cost some employees millions of dollars.

The Employee Retirement Income Security Act (ERISA) includes strict standards of conduct for those who fall under the definition of a fiduciary as it applies to employee benefit programs and is meant to protect individuals within the plan. The suit against Johnson and Johnson alleges a breach of the company’s fiduciary duties under ERISA. The complaint claims the plan paid its pharmacy benefit manager $10,239.69 for a 90-pill prescription of teriflunomide, a generic drug primarily used for multiple sclerosis.

This drug is available at grocery or drug stores for an out-of-pocket price – without using insurance – of $40.55 to $77.41. The complaint adds, “No prudent fiduciary would agree to make its plan and beneficiaries pay a price that is two-hundred-and-fifty times higher than the price available to any individual who just walks into a pharmacy and pays out-of-pocket.”

Understanding your ERISA Fiduciary Duty.

In addition to Johnson and Johnson as a company, several others have been named in the lawsuit as plan fiduciaries and include, 20 members of the Pension & Benefits Committee of Johnson and Johnson and the Plan Administrator, the Chief Human Resource Officer (CHRO), and two Vice President of Human Resources. It’s important to note that the CHRO, a C-Suite executive, is named and while not named in this suit directly, Johnson and Johnson’s CEO, as the company’s top executive, bears ultimate responsibility and could be held responsible by the Board for any damages the company suffers.

Thus, every company’s CEO – and CFO if there is not a CHRO, is very much in the line of fire as more of these lawsuits are filed.

While this is considered the first lawsuit by an employee against the employer for breach of ERISA fiduciary responsibility for the healthcare plan, there could be dozens of similar lawsuits to follow. Recently, multiple lawsuits have been brought against plan administrators, including Elevance Inc. (formerly Anthem) and Blue Cross Blue Shield of Massachusetts, for denying plan sponsors access to adequate claims data needed to exercise its ERISA-required fiduciary oversight.

What you need to know. IRS reporting – the next steps.

The Johnson and Johnson fiduciary lawsuit and others of its kind are a warning to CEOs, CFOs and CHROs. A company’s failure to provide fiduciary oversight of its healthcare spend is a huge regulatory and legal liability for a company and its executive leadership. Chief executives should recognize — and many are — the risk and exposure under the fiduciary requirements of ERISA and the 2021 Consolidated Appropriations Act.

And while transparency is often opaque in the overall pharmacy context, employers need to take a deep dive into their current Pharmacy Benefits Managers (PBM). When asking questions, be very specific about what they need and expect from the PBM arrangement. For example, information about drug costs, payment schedules, and spread pricing should be discussed.

If you haven’t taken an in-depth look into your benefits program, start today. Reach out to your consultant to examine any areas of your health plan that could be in violation of ERISA and the CAA. Protect your people, and your company, by ensuring your plan is in compliance.

Reach out today to discuss possible breach of ERISA fiduciary duty within your benefits program.

At Conner Insurance, we understand risk and benefits. Don’t hesitate to reach out and discuss your benefit program concerns.