On May 20, 2025, in Bokma v. Performance Food Group, Inc., the District Court for the Eastern District of Virginia denied a group health plan sponsor’s motion to dismiss three ERISA claims brought by participants who alleged the plan’s tobacco surcharge was unlawful.
Background
The plaintiffs in this case participated in defendant Performance Food Group, Inc.’s ERISA group health plan, which imposed an annual surcharge of $600 on employees and $300 on spouses or domestic partners who enrolled in the plan and did not self-certify that they had not used tobacco products within the previous 12 months. The plaintiffs asserted that the defendant’s surcharge was unlawful because it failed to adhere to DOL nondiscrimination rules, under which tobacco surcharges are permitted only as part of a bona fide wellness program that offers a reasonable alternative standard (RAS) to all participants to achieve the full reward (i.e., an alternative way for tobacco users to avoid the entire annual surcharge).
Specifically, the plaintiffs alleged that the defendant’s RAS (completion of a tobacco cessation program) violated the DOL nondiscrimination rules by failing to provide retroactive reimbursement of tobacco surcharges for the plan year. Additionally, the plaintiffs asserted that the defendant failed to provide sufficient notice of the RAS and their willingness to consider the recommendations of a participant’s physician in determining their RAS. Finally, the plaintiffs argued that the defendant, as plan administrator, breached its fiduciary duties of loyalty and prudence by mismanaging the wellness program and improperly retaining the surcharges, which resulted in financial harm to participants. The plaintiffs sought reimbursement of the “unlawful” surcharges for all affected participants, among other forms of relief.
In motioning to dismiss the plaintiffs’ claims, the defendant argued that the plaintiffs lacked standing to bring the lawsuit because they had not suffered a concrete injury. The defendant further maintained that the plan complied with ERISA’s statutory nondiscrimination requirements but that these requirements were not accurately interpreted in the DOL’s rules. Finally, the defendant claimed that the plaintiffs failed to allege a breach of a fiduciary act or breach of a fiduciary duty.
Court’s Analysis and Decision
First, the court determined that, although the plaintiffs did not participate in the tobacco cessation program, they had standing to bring the suit because they had suffered a monetary injury in the form of the $600 annual tobacco surcharge deducted from their paychecks.
Next, the court found that the plaintiffs had sufficiently alleged an ERISA violation because the plaintiffs’ claims “striked at the core” of ERISA’s nondiscrimination provisions, which prohibit discrimination based on health status-related factors including the use of tobacco. The court also noted that the DOL wellness plan regulations at issue were incorporated into ERISA. The defendant argued that the DOL regulations were not the “best read” of the statute, but the court did not believe the situation warranted disregarding the regulations (even after the Supreme Court’s Loper Bright decision) because the statute was not ambiguous or silent with respect to the discrimination at issue. However, the court acknowledged that the defendant could challenge the applicability of the DOL regulations later in the litigation.
Turning to the ERISA fiduciary breach claim, the court first determined that the plaintiffs had sufficiently pleaded that the defendant acted in a fiduciary and not settlor capacity with respect to the wellness program. In reaching this decision, the court observed that the plaintiffs’ claims were directed at the defendant’s discretionary role as plan administrator overseeing and managing the program (including the related surcharge reimbursements and disclosures) and not their role as settlor in designing the program.
Next, the court concluded that the plaintiffs had plausibly alleged that the defendant breached its fiduciary duties of loyalty (to act solely in the interest of participants) and prudence by retaining plan assets in the form of tobacco surcharges in its own account instead of contributing the amounts to the plan or administering retroactive refunds, and by failing to properly disclose material information about the program to participants. The court further emphasized that the defendant’s adherence to the plan document would not provide protection from liability if the plan terms or administration were inconsistent with ERISA.
Finally, the court considered the plaintiffs’ specific fiduciary breach claims. Drawing upon a Missouri district court opinion in the similar case of Mehlberg v. Compass Group, the court found that the plaintiffs sufficiently pleaded that the defendant violated ERISA’s nondiscrimination rules by denying participants retroactive surcharge reimbursements and by failing to provide the required notice of a compliant RAS (including a statement that recommendations of a participant’s physician would be considered in developing the RAS). Thus, the court denied the defendant’s motion to dismiss, and the case was allowed to proceed on all counts presented in the plaintiffs’ complaint.
Employer Takeaway
This case is one in a recent wave of ERISA fiduciary breach class action lawsuits, including numerous cases focused specifically on wellness programs that impose tobacco surcharges. Although the case is at a very early stage, employers that sponsor wellness programs, particularly those that impose tobacco surcharges, should be aware of this development.
It will likely take years for this lawsuit, and similar ones, to play out in court. However, employers applying tobacco surcharges should act now to review their wellness program for compliance with applicable legal requirements, and it is advisable to engage legal counsel in the process. More generally, employers should review their ERISA fiduciary governance practices to ensure they are fulfilling their fiduciary duties of loyalty and prudence and that their plan terms are consistent with ERISA.
For additional details regarding tobacco surcharge wellness programs and related litigation, please see our February 25, 2025, NFP Observations article. For further information on ERISA fiduciary obligations and governance, please ask your broker or consultant for a copy of the NFP publication ERISA Fiduciary Governance: A Guide for Employers. We will continue to monitor this topic and provide relevant updates in Compliance Corner.