Fiduciary Duty and Pharmacy Benefits: What Self-Funded Plan Sponsors Need to Know

The basics: ERISA fiduciary duty

Most private employer health plans are governed by ERISA. Anyone who exercises discretion over plan management or plan assets is a fiduciary, and must act prudently, solely in the interest of participants and beneficiaries, and only pay reasonable expenses for plan services. ERISA also prohibits certain transactions with service providers unless the arrangement is reasonable and properly disclosed.

For a self-funded plan, pharmacy is often the fastest-growing and least transparent expense. That makes the pharmacy benefit a natural focus for participants, regulators, and plaintiffs' firms that have spent years litigating retirement plan fees.

Many HR leaders first hear the word "fiduciary" applied to their health plan in an uncomfortable way: a board member forwards a news story about an employer being sued over drug costs and asks, "Could that be us?" The honest answer is usually "We don't know yet," because nobody has looked at the pharmacy benefit the way the 401(k) committee looks at fund fees. The good news is that the fix is mostly process, and process is something any organization can put in place.

Fiduciary vs. settlor decisions

An important distinction: not every benefit decision is a fiduciary decision.

Courts have drawn this line in pharmacy cases. In the JPMorgan case, the court dismissed fiduciary breach claims that targeted plan design as settlor functions, while letting prohibited transaction claims about the PBM arrangement proceed. source

What the lawsuits say

Sources: Jones Day Encore Groom. Case status as reported through mid-2026; appeals are pending.

The early dismissals turned on standing: courts found claims that participants paid higher premiums too speculative. The JPMorgan court accepted a different theory, that participants paid higher out-of-pocket costs (copays, coinsurance, and deductibles), which gave them standing. source That opens a path for future suits, especially where plan cost sharing is tied to inflated drug prices.

New federal rules

Consolidated Appropriations Act, 2021. Banned "gag clauses" that block plans from accessing cost and claims data, and requires an annual attestation, due every December 31. source It also requires annual prescription drug data reporting to federal agencies.

Consolidated Appropriations Act, 2026 (signed February 3, 2026) added major PBM rules for ERISA plans: source

• PBMs and other health plan service providers must disclose direct and indirect compensation under ERISA section 408(b)(2). Advisers read this as likely effective already.
• PBMs must pass through 100% of rebates, fees, and other remuneration to the plan, generally quarterly. Plans get audit rights over rebate records.
• Semiannual PBM reports (quarterly on request) for plans with 100 or more participants.
• An "innocent fiduciary" process if a PBM fails to pay: the fiduciary must demand payment in writing and notify the Department of Labor if the PBM doesn't comply.
• The pass-through, reporting, and innocent fiduciary provisions apply for plan years beginning on or after August 3, 2028, which is January 1, 2029 for calendar-year plans.

Separately, the Department of Labor proposed a PBM fee disclosure rule in January 2026 that would require initial and semiannual compensation disclosures and give plan fiduciaries audit rights. source It was still a proposal as of mid-2026. source

State pressure

States are adding pressure too. Several have requested PBM claims data across entire books of business, including self-insured employer plans. In December 2025, financial officers from 12 states wrote to Fortune 500 companies, as investors, urging payment-integrity reviews of health spending and asking how companies select and monitor plan vendors. source

What a prudent process looks like

ERISA judges fiduciaries largely on process. A prudent pharmacy oversight process usually includes:

1. Clear governance. A named committee or individual responsible for the pharmacy benefit, with a charter and regular meetings.
2. Contract review. Audit rights, data access, pricing definitions, rebate terms, and all compensation, read by someone who understands PBM contracts.
3. Independent benchmarking. Compare what the plan pays against actual-cost benchmarks and market alternatives, not only against the PBM's own guarantees.
4. Regular market checks. Many advisors suggest a full PBM market review or RFP every three years.
5. Use of rights. Exercise audit and data rights periodically, and follow up on findings.
6. Documentation. Record what was reviewed, what alternatives were considered, and why decisions were made.

What goes in a fiduciary file

If your pharmacy benefit decisions were ever questioned, what would you be able to show? A well-kept file usually includes:

• The committee charter or delegation documents naming who is responsible.
• Current PBM, TPA, and consultant contracts, amendments, and compensation disclosures.
• The most recent PBM market review or RFP, with the options considered and the reasons for the choice.
• Annual benchmarking of what the plan pays compared with independent, actual-cost data.
• Audit reports and how findings were resolved.
• Meeting minutes showing what was reviewed and decided.
• Records of gag clause attestations and required federal reporting.

Questions to ask your PBM about compensation

1. What are all the ways your organization, including affiliates, earns money from our plan?
2. Do you keep any difference between what our plan pays and what you pay pharmacies (spread)?
3. What rebates, fees, and other payments do you or affiliated entities receive from manufacturers on our plan's claims, and how much passes to us?
4. Do PBM-owned pharmacies (mail, specialty) fill our members' prescriptions, and how are those claims priced?
5. What audit and data rights do we have, and are there limits on who can audit and how often?
6. How will you comply with the 2026 law's pass-through and reporting requirements before they apply to our plan?

The role of independent advisors

Many plan sponsors rely on brokers and consultants to evaluate PBMs. That's sensible, but fiduciaries should understand how those advisors are paid. The 2021 law requires brokers and consultants to disclose compensation, and the 2026 law extends disclosure to PBMs and other vendors. source An advisor with no financial ties to the PBMs being evaluated gives a fiduciary file more weight.

Fiduciary checklist for pharmacy benefits

1. Confirm who the plan fiduciaries are and document their responsibilities for the pharmacy benefit.
2. Inventory every pharmacy vendor including the PBM, TPA, consultants, and specialty or rebate vendors.
3. Collect compensation disclosures from each vendor and review them for reasonableness.
4. File the gag clause attestation by December 31.
5. Benchmark plan costs against independent, actual-cost data at least annually.
6. Review your PBM contract against the 2026 law's pass-through, reporting, and audit requirements before your next renewal.
7. Exercise audit rights periodically and track the results.
8. Keep minutes and records of every review and decision.

Frequently asked questions