August 22, 2024

As we approach the 50th anniversary of the landmark Employees Retirement Income Security Act of 1974 (ERISA), the law’s fiduciary duty component is being tested once again. In Navarro v. Wells Fargo & Company, a small group of employees allege that the company’s health plan and its participants were forced to overpay for prescription drugs due to mismanagement of the plan’s pharmacy benefit management (PBM) services.

The plaintiffs assert that Wells Fargo and the named fiduciaries of the plan could have used different plan designs, vendors, or contractual terms to secure more favorable pricing. The complaint selectively compares the company’s PBM contract with other options, including “pass-through” PBM models and cash/uninsured prices, to argue that the fiduciaries failed to act “prudently” (among other ERISA terms) in the administration of the plan.

Those familiar with Lewandowski v. Johnson and Johnson (J&J), filed earlier this year, will notice the key similarities between the cases. While some details differ, both cases are fundamentally focused on how plan sponsors negotiate and manage relationships with third-party service providers like PBMs and what it means for a plan sponsor to act “prudently” for plan participants in the context of ERISA.

According to the Navarro complaint, the company’s failure to act "prudently" and in the best interests of plan participants resulted in millions of dollars in unnecessary expenses, higher premiums, and increased out-of-pocket costs for employees. The complaint cites specific ERISA standard on a fiduciary’s “Prudent man standard of care” (29 USC 1104(a)) is more detailed and has been the subject of litigation (as is the case here and in J&J) and voluminous academic work, professional advisory, and layperson commentary. But it’s the answer to this long-standing, nuanced, and complex question that is at the heart of the J&J and Wells Fargo cases.

While the lawsuit has some strong assertions by the plaintiffs, it is important to note that allegations themselves are not conclusions regarding any wrongdoing on part of the plan sponsor and fiduciary defendants. The lawsuit recites ERISA’s requirements for “care, skill, prudence, and diligence under the circumstances…” - and we anticipate that large employer plan sponsors have long followed these requirements in their own plan administration and decision-making. Nevertheless, given heightened interest by plaintiffs to attempt to bring claims against plans, employers may wish to take action to assess their own plans and programs with an eye towards ensuring that they can show a clear and prudent process for administration, decision-making, and documentation.

ERISA’s fiduciary duty is not a rigid standard, nor does it endorse any single method of managing plan benefits across all circumstances. The law allows employers flexibility to design and administer benefit plans that suit the specific needs of their workforce. We urge caution on relying on the numerous conclusory assertions and comparisons made throughout the complaint that appear to deem certain plan arrangements, designs, contracts, and decisions as “prudent”. We also urge further caution in rushing to assume that if your plan were to use one of those options, vendors, designs, etc. it and the company would be “safe” from legal challenges or scrutiny, regardless of credibility. Ultimately the ERISA fiduciary standard of care is for the fiduciaries to take stock of the broader circumstances, the broader context, and make decisions based on the “whole picture” – with diligence and care.

Navarro and J&J are just two examples of intense examination of PBMs and their role in both employer-sponsored coverage and the health care industry more broadly. (See: What Your CEO is Reading: PBMs – Continued Inquiry, Important Themes, New Risks, Oversimplification, and the Extent of Government Oversight.) This increased scrutiny has raised plan awareness and attention and may ultimately have market impacts. According to Business Group on Health’s recent 2025 Employer Health Care Strategy Survey, employers are reassessing their health plan and PBM partnerships, with 33% percent saying that they are changing or looking to assess health plan vendors and 37% noting the same regarding PBM relationships. Further, 20% of employers indicate that they are changing or will assess their consulting relationships as well.

Outside of ERISA’s fiduciary requirements, it is worth noting that, in the same survey, employers listed protecting ERISA preemption as their highest policy priority. ERISA and its preemption provisions have been instrumental in establishing a consistent and reliable statutory and regulatory structure for employer plan sponsors for half a century now. Maintaining ERISA as the primary legal framework for employer-sponsored benefit plans will support efficient plan administration and allow plan sponsors to devote comprehensive and nationally consistent resources to employee compensation and benefits.

Business Group on Health will continue to monitor developments related to both Navarro and J&J and will provide additional information to members. We also discussed this case in our August Public Policy: Regulatory & Compliance Update webinar. Watch it here.

Employer plan sponsors and fiduciaries may wish to engage with legal counsel and/or consultants to advise on next steps for their particular circumstances and plan administration.

We provide this material for informational purposes only; it is not a substitute for legal advice.

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