Summary: A federal judge in New York recently allowed certain ERISA claims against an employer group health plan sponsor for alleged pharmacy benefit mismanagement to proceed past a motion to dismiss.
Read on for more information and employer group health plan sponsor considerations.
Background
Similar to the bellwether Johnson & Johnson health plan fiduciary breach class action filed in February 2024, a class action lawsuit was filed on March 13, 2025 by current and former JPMorgan employees (plaintiffs) against several JPMorgan Chase entities and employee benefit plan fiduciaries (JPMorgan). The plaintiffs alleged that JPMorgan breached its ERISA[1] fiduciary duties of prudence and loyalty, and also engaged in ERISA prohibited transactions by mismanaging the prescription drug benefit within JPMorgan’s self-funded group health plan.
Specifically, the plaintiffs alleged that:
- JPMorgan breached its ERISA fiduciary duties of prudence and loyalty by entering into a pharmacy benefit management (PBM) arrangement with CVS Caremark because the arrangement included “grossly” inflated drug prices relative to acquisition cost,
- JPMorgan failed to implement cost-saving measures related to specialty drug classifications, and
- JPMorgan’s arrangement with CVS Caremark was unreasonable.
- As a result, an ERISA prohibited transaction occurred since JPMorgan allowed CVS Caremark to receive unreasonable compensation, which included spread pricing and retained rebates, in exchange for services.
Plaintiffs alleged that these actions by JPMorgan resulted in financial consequences for them, such as incurring:
- higher out-of-pocket costs, including higher copayments, deductibles, and coinsurance, and
- higher participant premium contributions.
ERISA Prohibited Transaction Background:
ERISA prohibits plan fiduciaries from causing an ERISA plan to engage in certain transactions with a party in interest, including a transaction involving the furnishing of goods or services between the party in interest and the plan. Parties in interest include most entities or persons who may otherwise interact with the plan (e.g., service providers, plan sponsor, participants). There are a number of legal exemptions that permit common plan transactions, including hiring parties in interest to provide services to the plan (e.g., claims administrators and PBMs) as long as the services are necessary, the contract or arrangement is reasonable, and the fees are reasonable.
When engaging plan service providers, plan administrators must ensure compensation received by the service provider is reasonable and necessary for the plan’s operation.
District Court Decision
In a March 9, 2026, ruling, the U.S. District Court for the Southern District of New York (District Court) addressed whether the plaintiffs had standing* to bring the case in the first place. The District Court held that while the plaintiffs lacked standing for claims based solely on higher premiums because they were “too speculative,” the plaintiffs did have standing regarding their out-of-pocket costs allegation.
*"Standing" is a legal concept that essentially determines whether a party has a sufficient “stake” in a dispute to obtain resolution of the dispute by a court. In order to establish standing, a plaintiff generally must plausibly allege they suffered a concrete, particularized, and actual or imminent injury that was likely caused by the defendant and that likely can be redressed by judicial relief.
Nevertheless, the District Court dismissed the plaintiffs’ fiduciary breach claims, determining that the challenged conduct by JPMorgan involved non‑fiduciary plan design functions (commonly known as “settlor” functions[2]). These include defining the formulary framework, determining cost-sharing terms, and choosing between pricing models, all of which are settlor functions, rather than fiduciary in nature.
The District Court did, however, permit the ERISA prohibited transaction claim to proceed based on a recent Supreme Court decision[3], which lowers the bar plaintiffs must meet to proceed with ERISA prohibited-transaction claims at this stage in the litigation. It’s worth mentioning that even though the ERISA prohibited transaction allegation may proceed forward at this point, the District Court noted in its decision that JPMorgan “may have ample defenses to this claim.”[4]
Employer Group Health Plan Sponsor Considerations
Given that it’s fairly early in the litigation process with the discovery phase set to occur shortly, it is also too early to speculate about the potential outcome of this case.
Notably, the JPMorgan case is the third lawsuit in this space, and the only one to survive a motion to dismiss so far.[5] Although employer group health plan sponsors generally maintain broad discretion over health plan design as part of settlor functions, this development in the JPMorgan suit highlights the current ERISA litigation risks related to PBM (and other plan service provider) compensation in light of the low bar for plaintiffs to make a claim that a prohibited transaction has occurred (as established in the recent Supreme Court decision referenced above).
On a related note, scrutiny around PBM compensation has intensified in recent years, culminating in the most sweeping federal legislative effort to regulate the industry to date with the enactment of the Consolidated Appropriations Act of 2026 (CAA 2026) on February 3, 2026. Click here for a Brown & Brown/Risk Strategies article with more details on the CAA 2026 and other federal developments in this realm.
While this JPMorgan case proceeds through the litigation process, Brown & Brown/Risk Strategies will continue to monitor developments and provide updates when available. In the meantime, contact your Brown & Brown/Risk Strategies account team with any questions and/or to request a copy of the Brown & Brown/Risk Strategies ERISA Group Health Plan Fiduciary Guide.
[1] ERISA stands for the Employee Retirement Income Security Act of 1974.
[2] “Settlor” functions generally refer to the formation, rather than the management, of a benefit plan (e.g., establishing a plan, choosing to amend/terminate a plan, requiring employee contributions, changing required levels of contributions, etc.).
[3] Cunningham v. Cornell University 604 U.S. 693 (2025)
[4] Stern v. JPMorgan Chase & Co., No. 25-2097 (S.D.N.Y. March 9, 2025).
[5] As a reminder, the two other similar cases of its kind that were dismissed early on were Lewandowski v. Johnson and Johnson et al. (referenced above) and Navarro et al. v. Wells Fargo & Company et al.
