Jury Returns Verdict in ERISA Case Alleging Excessive Retirement Plan Fees

On April 23, 2025, a jury in the Southern District of New York in the Khan v. Board of Directors of Pentegra Defined Contribution Plan litigation, (Case No. 7:20-cv-07561), reached a unanimous decision and awarded a class of plaintiffs over $38 million after finding Pentegra violated ERISA by breaching its fiduciary duties with respect to the Pentegra 401(k) plan. The plan is a multiemployer plan with over $2 billion in assets and approximately 26,000 participants in the banking and financial industries. In their amended complaint, the plaintiffs — who demanded and were granted a jury trial — alleged that Pentegra breached its fiduciary duties and engaged in prohibited transactions with respect the plan's allegedly excessive recordkeeping, administrative, and investment fees. 

In September 2023, the court entered an order denying Pentegra's motion to strike the jury trial demand. Determining that the plaintiffs sought both equitable and legal relief in their complaint, the court decided to conduct the trial in two phases. The first phase, before a jury, would address liability and damages related to the plaintiff's ERISA claim that Pentegra's fiduciary breaches caused losses to the plan, which the court construed as a legal remedy because any recovery would come from the defendants' general assets. According to the court:

Plaintiffs here seek to "make good to the Plan all losses to the Plan resulting from the breaches of fiduciary duty." Plaintiffs' prayer for relief makes clear that they seek to make good to the Plan all losses "out of the defendant's assets generally" rather than seeking to recover "particular funds or property in [Defendants'] possession." Accordingly, the Court holds that Plaintiffs' request that Defendants "make good" to the Plan losses suffered as a result of Defendants' alleged breaches of fiduciary duty is a legal remedy, not an equitable one. (internal citations omitted.)

The second phase would be decided by the court without a jury and focus on traditional equitable remedies given that the plaintiffs sought to impose a surcharge, remove the plan's fiduciaries, and reorganize the plan. The court stated "'[t]hese are traditional equitable remedies' and as such, no jury is required to adjudicate Plaintiff's claims for these categories of relief."  

Concluding the first phase, the jury reached the $38 million verdict in favor of the plaintiffs on liability and damages. While it is unusual to see jury trials in ERISA cases as the remedies available to plaintiffs have more traditionally been held to be equitable in nature and not triggering the Seventh Amendment right to a trial by a jury, the Second Circuit has been more of an outlier in recent years allowing for jury trials in a handful of these cases.

No decision has been issued on the second phase of the trial, which concluded on April 22, 2025. The plaintiffs are represented by Schlichter Bogard, LLC. This verdict is likely to fuel more requests for jury trials in ERISA cases, within and outside of the Second Circuit.

ERISA Preemption Complaint Filed Challenging Arkansas PBM Rule

On April 11, 2025, plaintiff Central States, Southeast and Southwest Areas Health and Welfare Fund (Fund), a self-funded, multiemployer employee welfare benefit plan with approximately 500,000 participants and covered dependents including approximately 6,000 in Arkansas, filed a complaint in the U.S. District Court for the Eastern District of Illinois asserting that ERISA preempts Arkansas Insurance Department Rule 128: Fair and Reasonable Pharmacy Reimbursements (Rule 128). Rule 128 was issued to implement the Arkansas Pharmacy Benefits Manager Licensure Act, Ark. Code Ann. § 23-92-501 et seq (Act), which regulates pharmacy compensation and pharmacy benefits manager (PBM) network adequacy and includes a comprehensive reporting requirement for health benefit plans. Under this rule, health benefit plans must report to the Arkansas Insurance Department an assortment of data regarding drug and dispensing fees and pharmacy reimbursements. The complaint alleges that "Rule 128 impermissibly refers to and regulates ERISA health plans and imposes requirements on central matters of plan administration and plan design." The complaint specifically challenges Rule 128's provisions that health plans: (1) report certain cost data to support their pharmacy reimbursement programs; and (2) pay additional dispensing fees if it is determined that their current reimbursement is unfair. The Fund seeks both declaratory judgment and a permanent injunction barring enforcement of Rule 128 against the Fund. 

As asserted in the complaint, "Rule 128 broadly applies to all health benefit plans," and explicitly includes ERISA plans. The Act defines "health benefit plan" as "any individual, blanket, or group plan, policy, or contract for healthcare services issued or delivered by a healthcare payor to residents of [Arkansas]." Ark. Code. Ann. § 23-92-503(2). The Act defines "healthcare payor" as an "entity that provides or administers a self-funded health benefit plan, including a governmental plan." Ark. Code. Ann. § 23-92-503(3). 

The complaint relies on Gobeille v. Liberty Mut. Ins. Co., 577 U.S. 312, 321, 323 (2016), for the assertion that ERISA's "detailed and extensive reporting, disclosure, and recordkeeping requirements" preempt Rule 128. The complaint also asserts that Rule 128 has an "impermissible connection with" ERISA health plans and "governs a central matter of plan administration" because it "clearly and directly regulates self-insured, ERISA-covered group health plans" "by requiring such plans to report certain pharmacy compensation information and dictating plan design by regulating the plan's pharmacy network." As part of its ERISA preemption claim, the complaint also refers to the prescription drug reporting requirements imposed by the amendments to ERISA through the Consolidated Appropriations Act, 2021 – commonly referred to as RxDC – as conflicting with what is required under Rule 128 because RxDC does not require the disclosure of the same types of information as Rule 128, "nor does it mandate that those reports be submitted to any State or subdivision thereof."

Interestingly, this new complaint does not distinguish the application of Rule 128 from the Arkansas PBM provisions at issue in Rutledge v. Pharmaceutical Care Management Association, 592 U.S. 80 (2020). As we have previously discussed, a decision by the Supreme Court to grant certiorari in Mulready v. Pharmaceutical Care Management Association, No. 23-1213, involving state PBM provisions in Oklahoma, is pending and could impact the progression of this new ERISA preemption challenge. 

DeMario Carswell Selected to Serve on the ESOP Association's Fiduciary Advisor Committee

DeMario Carswell, Counsel at Miller & Chevalier, has been selected to serve on the ESOP Association's Advisory Committee on Fiduciary Issues. The ESOP Association is the world's large employee ownership advocacy organization representing the interest of millions of employee owners. The ESOP Association has played a vital role in supporting and promoting employee ownership. 
 

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