Tobacco Surcharge Case Proceeds to Discovery 

On September 26, 2025, the U.S. District Court for the Western District of Tennessee allowed most of a putative class's ERISA claims to proceed against Sedgwick Claims Management Services Inc.'s (Sedgwick) in a wellness program case involving tobacco surcharges. Bailey v. Sedgwick Claims Management Services, Inc., No. 2:24-cv-2749. The court granted Sedgwick's motion to dismiss only in part and, even then, allowed the plaintiff to replead the dismissed claims without prejudice. 

In the complaint, Bailey, a current employee of Sedgwick, alleged she improperly paid tobacco surcharges and that the plan documents did not provide required notice of a reasonable alternative standard for meeting program requirements and avoiding the surcharges, including that recommendations of an individual's personal physician would be accommodated. She asserted violations of ERISA's anti-discrimination provision, §702(b), 29 U.S.C. §1182(b), and breach of fiduciary duty and prohibited transaction under ERISA §§ 404 and 406, 29 U.S.C. §§ 1104, 1106. She also alleged that Sedgwick discriminated against tobacco users by charging inflated insurance rates for supplemental and dependent life insurance in violation of ERISA.

Section 702(b) prohibits group health plans from discriminating based on a "health status-related factor" by requiring "any individual (as a condition of enrollment or continued enrollment under the plan) to pay a premium or contribution which is greater than such premium or contribution for a similarly situated individual enrolled in the plan." Department of Labor (DOL) regulations and guidance allow employers to offer wellness programs (including those imposing a tobacco surcharge) as long as those programs adhere to certain requirements, including providing employees the opportunity to earn a full reward through a waiver or an alternative standard if they cannot meet the initial health standard.

Sedgwick moved to dismiss the complaint, alleging lack of standing and that the DOL regulation at issue conflicted with the governing statute. The court rejected, in part, Sedgwick's standing argument, finding that even though the plaintiff did not allege that she completed or attempted to complete the tobacco cessation program, she still alleged a sufficient injury-in-fact in having been assessed the surcharges, which were alleged to be illegal, and the plaintiff "has the right to not to be charged an illegal surcharge in the first instance." The court, though, dismissed on standing grounds the plaintiff's ERISA claims based on higher premiums for supplemental or dependent life insurance, finding that the plaintiff did not allege that she paid higher premiums or that she even enrolled in the optional benefit options. The court did not give credence to Sedgwick's untimely assertion, raised for the first time in its reply brief, that the DOL lacked authority to issue the applicable wellness program regulation, but engaged with the issue enough to foreshadow that it did not believe the governing Public Health Service Act (PHSA) provision and the regulation "differ in a material way."

The court also rejected Sedgwick's motion to dismiss for failure to state a claim, retaining all the ERISA claims alleged, other than those arising from the life insurance allegations. In reaching its decision, the court made clear that the ERISA section 702(b) claim arising from the tobacco surcharge only survived because the plaintiff plausibly alleged that the "Plan materials fail to notify participants that a physician's recommendation will be accommodated" and not under the other theories asserted. The court also made clear that it was retaining the plaintiff's ERISA fiduciary duty and prohibited transaction claims based only on the allegations that Sedgwick assessed and collected the tobacco surcharge and retained the surcharge funds at the expense of the plan, failed to adequately review plan materials and communications, and failed to include in those documents information required by regulation. 

We previously reported on this recent wave of tobacco surcharge cases, many of which have been brought by the same plaintiffs' firm, including cases against GardaWorld Cash Services, Inc. and Walmart Inc., some of which have resulted in dismissals of ERISA fiduciary claims under 29 U.S.C. § 1132(a)(2) based on a failure to sufficiently allege losses to the plan. By contrast, in the case against Sedgwick, the court found that the plaintiff had sufficiently alleged losses to the plan because it had alleged that "Sedgwick commingled the funds from the tobacco surcharge and enriched itself at the expense of the Plan."

Additionally, given that multiple courts have denied dismissal of claims based on allegations that plans have failed to notify participants that a physician's recommendation will be accommodated as part of a tobacco cessation program, it is wise to review plan documents to determine whether this type of provision has been adequately disclosed.

Pension Risk Transfer Case Rejected on Standing Grounds

On September 24, 2025, the court in Bueno v. General Electric Company, et al., No. 1:24-cv-0822 (N.D.N.Y), granted the defendants' motions to dismiss a purported class action lawsuit brought by participants of a General Electric pension plan. Three participants filed this lawsuit in June 2024 against General Electric and the company's pension board, board of directors, and committee responsible for the pension plan (collectively, GE), and Fiduciary Counselors, Inc. (FCI), alleging the defendants violated ERISA by transferring GE's pension obligations to the plaintiffs to what they alleged was a high-risk annuity provider, Athene Annuity and Life Co. or Athene Annuity & Life Assurance Company of New York (collectively, Athene). According to the complaint, FCI served as an independent fiduciary for the transaction. Specifically, the plaintiffs alleged the defendants violated ERISA by: (1) selecting "Athene as the annuity provider related to the partial pension risk transfer (PRT)" when Athene "was not the safest annuity choice available and was not the choice that would best promote the interests of the Plaintiffs and other transferees," (2) engaging in prohibited transactions to increase GE's corporate profits, and (3) failing to monitor fiduciaries hired to manage the plan. The plaintiffs further alleged in the alternative that insofar as any of the defendants were not acting as ERISA fiduciaries when selecting Athene, they are liable under ERISA for knowingly participating in the fiduciary breaches of the other defendants. 

GE and FCI filed motions to dismiss the lawsuit. The ERISA Industry Committee (ERIC) filed a brief as amicus curiae in support of the defendants, and the Pension Rights Center filed a brief as amicus curiae in support of the plaintiffs.

In granting the motions to dismiss for lack of subject matter jurisdiction, the court held that the plaintiffs' allegations were not sufficient to show they suffered an injury as required to establish Article III standing. The court articulated the standard for Article III standing as requiring a plaintiff to show: "(1) that he or she suffered an injury in fact that is concrete, particularized, and actual or imminent, (2) that the injury was caused by the defendant, and (3) that the injury would likely be redressed by the requested judicial relief." In attempting to meet this standard, the plaintiffs claimed they suffered an injury as required under Article III because the transfer of the liability for pension plan benefits to the annuity provided by Athene (1) reduced the value of their promised benefits, (2) invaded their right "to be free from breaches of fiduciary misconduct," and (3) "created a substantial risk" that they would suffer future financial injury in the event of Athene's default. The court rejected each of the plaintiffs' arguments.

As to the first argument, the court determined that the plaintiffs failed to allege any facts of "actual present loss of value of their benefits as a result of the PRT or the selection of Athene." According to the court, "the mere action of engaging in a PRT does not cause a legally cognizable injury to establish standing for Plaintiffs' claims." The court also determined that the plaintiffs failed to allege any facts that plausibly suggested a concrete injury due to the alleged fiduciary breach of defendant FCI putting "its own interest and the perceived interests" of GE over the plaintiffs. Further, the court noted that while the plaintiffs did allege facts that "might make Athene riskier than some other annuity providers," they failed to plausibly allege that Athene was "in substantial risk of defaulting on its obligation related to the annuity here in a manner that meets the imminence requirement." Based on the deficiencies in the plaintiffs' pleadings, the court granted the defendants' motions and dismissed the plaintiffs' claims without prejudice.

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