Arkansas Rule 128 Deemed a Non-Preempted Cost Regulation

On September 2, 2025, the court in Central States, Southeast and Southwest Areas Health & Welfare Fund v. McClain, No. 25 CV 3938 (N.D. Ill.), dismissed an ERISA preemption claim filed by Central States, Southeast and Southwest Areas Health and Welfare Fund and the Fund's trustee (together, Central States). Earlier this year, Central States sued the Arkansas Insurance Commissioner and the Arkansas Insurance Department (together, the defendants) seeking, among other things, a declaration that the Department's Rule 128: Fair and Reasonable Pharmacy Reimbursements is preempted by ERISA. The Fund is a self-funded, multiple employer employee welfare benefit plan (MEWA) governed by ERISA. 

Rule 128 was issued in December 2024 to implement the Arkansas Pharmacy Benefits Manager (PBM) Licensure Act (PBMLA). Rule 128 specifically addresses the PBMLA's PBM compensation and network adequacy provisions and applies to "health benefit plans" and "healthcare payors" as defined in the Arkansas Insurance Code. 

At issue in this case was Rule 128's provision allowing the Commissioner to impose a dispensing fee (payable to pharmacies) if pharmacy compensation is "not fair and reasonable" (Dispensing Fee Requirement) as well as a reporting provision that requires health benefit plans to submit to the Commissioner certain pharmacy compensation information (Reporting Requirement). The Commissioner also issued a bulletin to implement Rule 128, Bulletin #18-2024, which, among other things, set forth more detail about the Reporting Requirement. 

Central States brought an ERISA preemption challenge based on both the "reference to" and "connection with" theories arising under ERISA's express preemption provision, 29 U.S.C. § 1144(a). As to the "reference to" theory, Central States argued that the Reporting Requirement and the Dispensing Fee Requirement refer to ERISA plans because they "impose requirements directly on ERISA plans rather than simply regulating PBMs." The court disagreed, finding that plaintiffs had not successfully pled that Rule 128 "exclusively acts on ERISA plans, nor is the existence of an ERISA plan essential to the Rule's operation," citing the text of Rule 128 that "appears to function 'irrespective of... the existence of an ERISA plan'" (quoting Ca. Div. of Lab. Standards Enf't v. Dillingham Constr., N.A., Inc., 519 U.S. 316, 325 (1997)), and "regulates health benefit plans and payors 'whether or not the plans... fall within ERISA's coverage'" (quoting Rutledge v. Pharm. Care Mgmt. Ass'n, 592 U.S. 80, 89 (2020)). 

As to the "connection with" theory, Central States argued that the Reporting Requirement is preempted because it "governs a central matter of plan administration," citing Gobeille v. Liberty Mutual Insurance Company, 577 U.S. 312, 319 (2016). The defendants argued in response that the Reporting Requirement is an incidental component of Rule 128, relying on Self-Insurance Institute of America, Inc. v. Snyder, 827 F.3d 549 (6th Cir. 2016). The court summed up the dispute as: "[I]s Rule 128 a dispensing rule, or a reporting rule?" The court found Central States' complaint contradictory because it alleged that Rule 128 "governs plan reporting, disclosure, and – by necessary implication – recordkeeping," which are "fundamental components of ERISA's regulation of plan administration," but also alleged that Rule 128 "includes a reporting obligation" "[i]n furtherance of [Rule 128's] purpose" (emphasis added). Ultimately the court held that Central States had not successfully pled "connection with" preemption to withstand the defendants' motion to dismiss, given the contradictory pleading and the plain language of Rule 128 itself (incorporated into the complaint). 

As to "connection with" preemption of the Dispensing Fee Requirement, the defendants argued that Rule 128 is "virtually indistinguishable from the rate regulation" at issue in Rutledge. Central States argued, instead, that the Dispensing Fee Requirement is preempted because "it dictates plan design by regulating the [plaintiffs'] pharmacy network and restricting the [plaintiffs'] ability to structure how it provides description drug benefits to its participants and beneficiaries." The court agreed with the defendants, concluding that "Rule 128 is a cost regulation statute," and moreover, Rule 128 only provides that "[t]he Commissioner has the authority to assess whether a dispensing fee is required at all; in other words, not every plan, including ERISA plans, may be subject to the fee after review of the requested data under the Reporting Requirement." The court also rejected Central States' argument that Rule 128 created an "indirect economic influence" sufficient for "connection with" preemption in the form of the "potential fee forc[ing] them into a particular scheme of coverage" or "the possibility that a health plan might be forced to pay a higher dispensing fee," relying on Rutledge. Lastly, the court rejected Central States' interpretation of Rule 128 as "prohibiting ERISA plans' ability to require their Arkansas participants pay a higher amount for their prescription drugs, to offset the higher dispensing fees." The court agreed with the defendants that "the provision merely requires plans to adhere to their own terms, and it does not prevent plans from increasing co-pays, co-insurance or deductibles to account for any increased dispensing fee they are required to pay." 

This case adds to the growing jurisprudence regarding ERISA preemption of state PBM laws, which we frequently analyze, such as here and here. 

Spring 2025 Unified Agenda Includes ESOP Rule on Adequate Consideration

On September 4, 2025, the Office of Management and Budget's (OMB) Office of Information and Regulatory Affairs (OIRA) released its Spring 2025 Unified Agenda of Regulatory and Deregulatory Actions, which continues to include at the proposed rule stage the "Worker Ownership, Readiness, and Knowledge-Proposed Regulation Relating to the Definition of Adequate Consideration" for employee stock ownership plans (ESOP). Section 346 of the SECURE 2.0 Act, entitled the Worker Ownership, Readiness and Knowledge (WORK Act), requires the Department of Labor (DOL) in consultation with the Department of the Treasury to issue formal guidance for acceptable standards and procedures to establish good faith fair market value for shares of a business to be acquired by an employee stock ownership plan (as defined in section 407(d)(6) of ERISA). These standards will guide regulated parties in meeting ERISA's adequate consideration prohibited transaction exemption with respect to ESOPs. 

On January 16, 2025, the DOL announced a draft adequate consideration rule in a Notice of Proposed Rulemaking (NPRM). The DOL's draft rule was set to be published in the Federal Register on January 22, 2025, and included a 75-day period for public comment on the rule. On January 20, 2025, before the DOL's draft rule was published in the Federal Register or the public comment period began, the Trump administration issued an executive order freezing all pending rulemaking proposals and withdrawing the draft rule. The ESOP community regards the continued inclusion of the adequate consideration rule as part of the Spring Agenda as a welcomed step forward by the DOL as it means the agency will move forward with formal rulemaking as early as January 2026. Formal guidance on adequate consideration has been long sought after by the ESOP community in its ongoing efforts to encourage and support employee ownership without the uncertainty that has existed around regulatory enforcement and private party litigation. 

Tobacco and Vaccine Surcharge Case Decided on Motion to Dismiss

On August 27, 2025, the court in Fisher & Artis v. GardaWorld Cash Service, Inc., No. 24-cv-00837 (W.D.N.C.), granted in part and denied in part defendant GardaWorld Cash Service, Inc.'s motion to dismiss. The case concerns both tobacco and vaccine surcharges and alleged both breach of fiduciary duty and anti-discrimination claims arising under ERISA. 

More specifically, the plaintiffs alleged that the surcharges violated DOL anti-discrimination regulations set forth at 29 C.F.R. § 2590.702(f) because they, and a putative class, were not offered retroactive refunds of surcharges for satisfying the surcharge avoidance requirements after the cut-off but before the end of the plan year. The plaintiffs also alleged that they were prevented from earning the "full reward" because the wellness programs did not adequately disclose the reasonable alternative program (the tobacco cessation program) and that participants were unaware that recommendations from their personal physicians would be accommodated because the plan documents lacked the necessary disclosures. The plaintiffs also asserted that GardaWorld breached its fiduciary duties by: (1) refusing to retroactively refund surcharges; (2) by using the surcharges to reduce its own obligations to the plan; (3) by using plan assets for its own benefit; and (4) by administering noncompliant programs under the plan (i.e., by failing to disclose material plan information and assessing and collecting unlawful vaccine and tobacco surcharges). 

The court retained the anti-discrimination claims but dismissed the fiduciary duty claim. The court found that even assuming that Gardaworld was acting in a fiduciary capacity, the plaintiffs' fiduciary duty claims failed because they did not plausibly allege losses to the plan. The plaintiffs proceeded under ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2), bringing claims in a representative capacity on behalf of the plan as a whole. The court found that the plaintiffs were required to plausibly allege that the plan language provides that unpaid employer contributions (i.e., withholding of money from paychecks in the form of surcharges) are plan assets and they failed to do so. Additionally, the court found that the allegation that GardaWorld used the withheld surcharges to offset its own costs, without more, does not mean the plan suffered any harm and GardaWorld was free to amend the terms of the plan to make clear that they were using surcharges to offset plan expenses. The court retained the anti-discrimination claims on the narrow basis that, at least at the pleading stage, the plaintiffs successfully alleged that the plan documents did not include a statement explaining that the recommendations of an individual's personal physician would be accommodated as part of the reasonable alternative standard under GardaWorld's wellness program. 

We covered trends in this area to include tracking decisions on motions to dismiss from a wave of these cases filed in Fall 2024, most of which are still pending.

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