From tracking ERISA enforcement actions and fiduciary docket filings since the Supreme Court’s Cunningham decision in April 2025, a pattern has emerged: the plaintiff bar is applying the same pressure-tested fee-litigation framework from retirement plans to the employer health plan market. Four separate developments, each significant alone, now converge into a fiduciary exposure that self-funded plan sponsors need to quantify and reserve for.
The Lawsuits
On December 23, 2025, Schlichter Bogard, the firm that built the 401(k) excessive-fee playbook, filed four ERISA class actions targeting CHS/Community Health Systems, Labcorp, United Airlines, and Allied Universal alongside benefits consultants Gallagher, WTW, Mercer, and Lockton. The complaints allege that voluntary benefit premiums for accident, critical illness, and hospital indemnity coverage exceeded comparable market rates by 30% to 600%, constituting fiduciary breaches under ERISA Sections 404 and 406.
The central legal question is whether these employer-facilitated programs fall outside ERISA under the Department of Labor’s “voluntary plan” safe harbor (29 C.F.R. Section 2510.3-1(j)). That safe harbor requires, among other conditions, that the employer not endorse the program beyond permitting payroll deductions. Plaintiffs argue that active employer involvement in carrier selection and broker negotiation crosses the endorsement line, pulling these plans into ERISA’s fiduciary framework.
On a parallel track, federal courts are hearing ERISA claims targeting pharmacy benefit manager (PBM) arrangements directly. In Stern v. JPMorgan Chase, plaintiffs survived a motion to dismiss by presenting price analyses alleging that poor PBM contract negotiation caused millions in plan overpayments. A Jones Day analysis published this month attributes that result directly to a Supreme Court decision that lowered the threshold for prohibited-transaction claims.
The Pleading Shift
The Supreme Court’s unanimous April 17, 2025 decision in Cunningham v. Cornell University (604 U.S. 693) held that plaintiffs alleging prohibited transactions under ERISA Section 406 need only plead three elements: that a fiduciary caused the plan to engage in a transaction, that it involved furnishing goods or services, and that the counterparty was a party in interest. Section 408 exemptions, including the “reasonable compensation” defense, are affirmative defenses the defendant must prove. As Justice Alito noted in his concurrence, “getting by a motion to dismiss is often the whole ball game because of the cost of discovery.” Cases that would have been dismissed at the pleading stage before Cunningham now survive into discovery, where litigation costs alone create settlement pressure.
The State Probe
In December 2025, financial officers from 12 states (Indiana, Kentucky, Louisiana, Mississippi, Montana, Nebraska, North Dakota, Ohio, Oklahoma, South Carolina, Utah, and Wyoming) sent letters to Fortune 500 companies requesting documentation of how fiduciaries select and monitor health plan service providers. The letters flagged both litigation risk and DOL enforcement exposure, putting employers on notice that fiduciary oversight of health plan vendors is now a multi-front regulatory concern.
The CAA 2026 Mandate
The Consolidated Appropriations Act of 2026 (CAA 2026), signed February 3, 2026, designates PBMs as “covered service providers” under ERISA Section 408(b)(2), a classification that took effect immediately. PBMs must now meet the same compensation-disclosure standards that apply to retirement plan recordkeepers. Separately, CAA 2026 requires 100% rebate pass-through, full direct and indirect compensation disclosure, and plan audit rights, with those provisions taking effect for calendar-year plans on January 1, 2029. Once operative, the statutory baseline for “reasonable compensation” will make it substantially harder for plan fiduciaries to defend opaque PBM arrangements.
Who It Affects
Self-funded employer health plan sponsors, the CFOs and treasurers who sign off on benefit accruals, HR benefits leaders who select and monitor vendors, and the consulting firms that advise them. Employers in industries with large voluntary benefit programs and complex PBM arrangements face the most immediate exposure: healthcare systems, airlines, logistics, and large professional services firms. The four Schlichter defendants alone represent combined plan participation in the hundreds of thousands of employees.
The Reserve Mechanism
Self-funded plan sponsors face two new reserve pressures.
Contingent fiduciary liability. The litigation environment now supports a reservable contingent liability for potential participant restitution and defense costs. Under ASC 450, a loss contingency requires accrual when the loss is probable and reasonably estimable, and disclosure when reasonably possible. Four filed class actions, a lowered pleading standard, and active state-level scrutiny move at least the disclosure threshold for many large employers.
Pharmacy cost restructuring. Plans that restructure PBM arrangements in response to fiduciary scrutiny (moving from spread-pricing to pass-through, for example) will see shifts in expected pharmacy costs and claim ratios. The gross-to-net pharmacy reconciliation changes, altering IBNR calculations for the health plan itself. Plans that have already moved to transparent PBM models may see reduced per-member-per-month pharmacy trend; plans that have not yet restructured face the adjustment as a step-function change rather than a gradual trend shift.
Where This Shows Up in Your Reserves
Two places in your reserve documentation. First, the contingent liability footnote in your financial statements: if your plan has voluntary benefits administered through payroll with employer-selected carriers, or a PBM arrangement with undisclosed spread or rebate retention, the current litigation environment may warrant disclosure or accrual under ASC 450. Second, the pharmacy cost trend assumption in your self-funded health plan IBNR: any restructuring of PBM terms changes the expected claim ratio that drives incurred-but-not-reported estimates for the pharmacy component.
Decision-Maker Checklist
- Request a written summary from your benefits consultant identifying every voluntary benefit program administered through payroll, and confirm whether the DOL safe harbor conditions are met for each one.
- Ask your PBM for a full accounting of direct and indirect compensation, including spread, rebate retention, and manufacturer fees, using the CAA 2026 Section 408(b)(2) disclosure framework as a template even before the 2029 reporting deadline.
- Confirm with outside counsel whether the current ERISA litigation environment triggers ASC 450 disclosure requirements for your plan’s financial statements.
- Review your fiduciary liability insurance policy for coverage of health plan administration claims, not just retirement plan claims.
- If your plan uses spread-pricing, model the IBNR impact of a switch to pass-through before your next reserve review.
What This Means for Your Next Review
The next interim monitoring or annual reserve study for your self-funded health plan should include a line item for contingent fiduciary exposure and a sensitivity test on pharmacy trend assumptions. If your plan restructures its PBM relationship before the CAA 2026 deadline, the expected claim ratio for pharmacy will shift; your actuary needs to know about the change in time to adjust the projection. Raise both items at your next benefits committee or audit committee meeting. This is too new for the actuary to flag without a prompt from the plan sponsor.
An independent reserve review brings a second pair of eyes that’s free of the TPA’s or fronting carrier’s incentive structure. We’re working on a directory of independent reviewing actuaries. If you’d like to be considered, get in touch.
Sources
- Jones Day, “Rising Scrutiny of Employer Health Plan Administration” (May 2026)
- Holland & Knight, “Understanding the New Wave of ERISA Litigation Targeting Voluntary Benefit Plans” (January 2026)
- Snell & Wilmer, “Voluntary Benefit Programs: The Plaintiff Class Action Lawyers are Coming” (January 2026)
- Morgan Lewis, “CAA 2026: The New Landscape of PBM Fiduciary Oversight” (February 2026)
- Gibson Dunn, “The Supreme Court Clarifies Pleading Standards for ERISA Prohibited Transaction Claims” (April 2025)
- Supreme Court of the United States, Cunningham v. Cornell University, 604 U.S. 693 (2025)