Benefits Counselor - May 2025

RETIREMENT PLAN UPDATES

U.S. Supreme Court Clarifies Pleading Standard for ERISA Prohibited Transaction Claims

On April 17, 2025, the U.S. Supreme Court resolved a circuit split in Cunningham v. Cornell University, holding that to state a claim for prohibited transactions under section 406 of the Employee Retirement Income Security Act of 1974 (ERISA) a plaintiff need only plausibly allege that a prohibited transaction occurred, without addressing potential exemptions under ERISA section 408. In Cunningham, current and former participants of the Cornell University retirement plans sued Cornell and plan fiduciaries for allegedly causing the plans to engage in a prohibited transaction in violation of ERISA section 406 and alleged that the fees the plans had paid to the recordkeeper were unreasonable. The District Court dismissed the plaintiffs’ claim, and the Second Circuit affirmed on a different ground, reasoning that because ERISA section 408 exemptions are incorporated into ERISA section 406 prohibitions, to survive a motion to dismiss, a plaintiff must affirmatively plead that a section 408 exemption does not apply.

The Supreme Court reversed the U.S. Court of Appeals for the Second Circuit’s ruling, holding that plaintiffs may state a claim for relief by simply alleging that a plan fiduciary engaged in a prohibited transaction under section 406 without addressing potential exemptions under ERISA section 408. In its reasoning, the Court relied on statutory construction to determine that ERISA section 408 sets out affirmative defenses and that the defendant has the burden of proof to prove an exemption applies. Accordingly, plaintiffs need only plead the three elements under section 406, that a fiduciary caus[ed] a plan to engage in a transaction, that the fiduciary knows or should know constitutes a direct or indirect furnishing of goods, services or facilities, between the plan and a party of interest.

Although the Court acknowledged Cornell’s “serious concerns” that the reading of ERISA section 406 could create meritless litigation, the Court reasoned practical concerns cannot overcome statutory text and structure. The Court proposed that lower courts use mechanisms to screen out meritless claims, including requiring plaintiffs to file a reply with “specific, nonconclusory factual allegations” to an answer to plead that an exemption does not apply, dismissing suits that fail to identify a concrete injury from the alleged prohibited transaction, limiting discovery, imposing sanctions on a plaintiff and their counsel. The Cunningham decision lowers a plaintiff’s pleading standard for a prohibited transaction claim, but time will tell whether lower courts heed the Court’s guidance to prevent potential meritless transaction claims from proceeding further.

Second Circuit Finds Not Excluded from SFA Multiemployer Plans Terminated by Mass Withdrawal

The U.S. Court of Appeals for the Second Circuit issued an opinion in Board of Trustees of Bakery Drivers Local 550 & Indus. Pension Fund v. Pension Benefit Guar. Corp., 2025 WL 1226844 (2d Cir. Apr. 29, 2025), finding that Special Financial Assistance (SFA) multiemployer plans terminated by mass withdrawal are not per se excluded from Pension Benefit Guaranty Corporation (PBGC) assistance. In Bakery Drivers Loc. 550, the plaintiff applied for SFA, which mandates the PBGC to grant assistance to plans in “critical and declining status.” The plaintiff asserted that it was eligible for assistance because the Fund was in critical and declining status, but the PBGC rejected the request determining that the Fund was ineligible because the Fund had been terminated by mass withdrawal. The Fund sued and the district court granted summary judgment in favor of the PBGC.

The Second Circuit reversed the district court’s decision, reasoning that the statutory language that outlines SFA eligibility did not explicitly exclude plans terminated by mass withdrawal but instead mandates PBGC assistance to funds in “critical and declining status.” Although the Court considered the PBGC’s concerns regarding administrative challenges and budget concerns, the Court emphasized that it must interpret the statute as enacted by Congress, which did not exclude terminated plans for SFA relief.

HEALTH AND WELFARE PLAN UPDATES

Fifth Circuit Finds Participant Substantially Complied with Change-of Beneficiary Requirements

The U.S. Court of Appeals for the Fifth Circuit issued an opinion in Morgan v. Arriazola, No. 21-20497 (5th Cir. Apr. 21, 2025), affirming the district court’s decision and finding that the plaintiffs had standing under ERISA and that the participant had substantially complied with requirements to change her life insurance beneficiary. In Arriazola, a participant in an ERISA-governed life insurance plan initially designated her sisters as her beneficiaries but was later required to file a new beneficiary designation due to lost plan records. The participant did not file a new beneficiary form but did execute a power of attorney which stated that she wanted the plaintiffs to receive her insurance proceeds and other benefits. The plaintiffs subsequently called the plan on the participant’s behalf, identified as the power of attorney, and requested to be added as the participant’s beneficiaries. The plan added the plaintiffs as the beneficiaries. After the participant’s death, when the plan mailed the plaintiffs a letter to begin the life insurance claim process, the plan discovered that beneficiary changes were made without the power of attorney on file.

The Court found that the plaintiffs had standing under ERISA to bring their claim, recognizing an exception to the exhaustion of remedies requirement when it would be futile. The Court found that the participant substantially complied with change-of-beneficiary requirements, evidenced by her intent to change to her beneficiary designation and attempt to make the change despite her failure to complete a new beneficiary form. Although the Fifth Circuit recognized a participant substantially complied with requirements to change a beneficiary, plan sponsors should still exercise care when receiving requests to change beneficiary designations and ensure a beneficiary designation form is on file when possible.

Missouri District Court Permits Tobacco Premium Surcharge Claims to Proceed Beyond Pleading Stage

The U.S. District Court for the Western District of Missouri issued a decision in Mehlberg v. Compass Group, USA, Inc. (W. D. Mo. Apr. 15, 2025), finding that plaintiffs had standing to challenge the defendant’s premium tobacco surcharges, plausibly alleging that the surcharges violated fiduciary rules under ERISA. Mehlberg is one of more than 30 class actions plaintiffs filed against employers challenging wellness programs that impose a health coverage premium surcharge if participants use tobacco or do not complete a tobacco cessation course and alleging that the surcharges violate HIPAA’s non-discrimination provision and wellness program rules.

The Court held that the plaintiffs had standing to bring their claim because the plaintiffs plausibly alleged that they suffered an injury traceable to the employer’s conduct because their employer unlawfully deducted money from their paychecks, and that the premium surcharges violated HIPAA non-discrimination rules because the plan did not offer retroactive reimbursement of the annual surcharge upon completion of tobacco cessation courses. Further, the Court reasoned for purposes to survive a motion to dismiss, plaintiffs sufficiently alleged that their employer acted as an ERISA fiduciary that engaged in a prohibited transaction when the employer collected the surcharges and used them to offset the amount of the employers’ contributions to the plan. While Mehlberg is the first case of its kind to survive a motion to dismiss for tobacco premium surcharge allegations, with more than a dozen similar, pending class action cases, the path forward with respect to tobacco premium surcharges is uncertain.

Trump Administration Issues Executive Order Seeking to Lower Prescription Drug Prices

On April 15, 2025, the Trump Administration signed a new executive order, Lowering Drug Prices by Once Again Putting Americans First, seeking to lower prescription drug prices and take actions to reduce healthcare costs. The wide-ranging executive order instructs several federal departments and agencies to promptly release regulations implementing the order or, if appropriate, collaborate with Congress to identify any statutory changes needed. Main provisions of the order include the following:

• Directing the U.S. Department of Labor (DOL) to propose regulations under ERISA section 408(b)(2) to increase transparency regarding direct and indirect compensation received by pharmacy benefit managers;
• Directing the U.S. Department of Health and Human Services Secretary (HHS Secretary) to elicit comments on guidance for improved transparency and drug selection in the Medicare Drug Price Negotiation Program provisions under the Inflation Reduction Act to minimize negative impacts of pharmaceutical innovation and drug development;
• HHS to ensure hospitals and clinics provide insulin and injectable epinephrine to low-income patients available at or below the discounted price paid by the health center under the 340B Prescription Drug Program who have a high cost-sharing requirement for either insulin or injectable epinephrine have a high unmet deductible, or have no health care insurance; and
• Aligning Medicare payments for outpatient prescription drugs with hospitals’ acquisition costs and directing the HHS Secretary to evaluate or propose regulations to ensure Medicare does not encourage a shift in drug administration volume away from doctors’ offices to more expensive hospital settings.

While several directives in the executive order require implementation within the next year and would require congressional legislative action, these provisions indicate the Trump Administration’s plan to reduce drug costs and implement necessary healthcare changes.

IRS Releases 2026 Limits for HSAs, HDHPs and Excepted Benefit HRAs

In Internal Revenue Procedure 2025-19, the IRS announced adjusted 2026 limits for health savings accounts (HSAs), high deductible health plans (HDHPs) and excepted benefit health reimbursement arrangements (HRAs).

For HSAs, eligible individuals may contribute up to the following amounts in 2026:

• $4,440 if they elected self-only HDHP coverage (an increase from $4,300);
• $8,750 if they have family HDHP coverage (an increase from $8,550); and
• $1,000 if they qualify for catch-up contributions (the same from 2025).

For HDHPs, the minimum annual deductible for 2026 is as follows:

• An annual minimum deductible of $1,700 for self-only coverage (an increase from $1,650) or $3,400 for family coverage (an increase from $3,300); and
• An annual out-of-pocket maximum of no more than $8,500 for self-only coverage (an increase from $8,300) or $17,00 for family coverage (an increase from $16,600).

Additionally, employers that sponsor excepted benefit HRAs can make up to $2,220 newly available to participants for the plan year beginning in 2026 (an increase from $2,150).

UPCOMING COMPLIANCE DEADLINES AND REMINDERS

Health Plan Compliance Deadlines and Reminders

RxDC Reporting. Health plans must file reports on prescription drug and health care spending for the 2024 calendar year by June 1, 2025.