Benefits Monthly Minute
The March Monthly Minute brings you three recent case updates addressing 401(k) forfeiture utilization, TPA responsibility for recovering self-insured plan’s fraudulently paid claims, and continued PBM litigation in the wake of the J&J case.
Clorox Can’t Clean Up Forfeiture Suit
Earlier this month, a California district court refused to dismiss a case against Clorox alleging wrongful use of its 401(k) plan forfeiture account. The case rests on a novel theory that the practice of using forfeitures to reduce plan administrator expenses instead of offsetting administrative costs to plan participants breaches ERISA’s duty of loyalty and prudence. Plaintiffs allege that defendants were motivated solely by self-interest in using forfeitures to reduce Clorox’s non-elective contributions rather than to reduce participants’ administrative costs, and further that defendants utilized an imprudent process by failing to investigate which option was in the best interest of participants and beneficiaries. The court was unpersuaded by defendants’ response that plaintiff’s theory would render “nearly every plan” unlawful and noted that “a fiduciary is not allowed to violate ERISA merely because language in a plan document allows it.”
KMK Comment: This case joins a long line of litigation challenging the use of plan forfeitures. Notably, the court emphasized the extent to which fiduciaries engaged in a prudent process in deciding how use forfeitures. In this respect, plan administrators and benefit committees should carefully consider the possible uses of forfeitures and document their decision process particularly when deciding to use 401(k) forfeitures to offset employer plan contributions.
Cheese Company Wants Its Cheddar in Suit Against UHC
Leprino Foods, a cheese manufacturer, landed an initial win against UHC in its suit to recover fraudulently paid claims made on behalf its self-funded medical plan from UHC. On March 17, 2025, the Colorado court denied UHC’s motion to dismiss Leprino’s breach of fiduciary duty and breach of contract claims. The court cited Leprino’s allegations that UHC failed to abide by its service agreement that required UHC to provide various fraud detection and recovery services, and rejected the argument that such contract claims are preempted by ERISA. Further, given Leprino sought relief for both itself (as to the contract claim) and in favor of the plan (as to its ERISA fiduciary status), the court found that ERISA arguably provides an additional avenue for relief.
KMK Comment: Self-funded plan TPAs are the primary (and often the only) line of defense against the overpayment of claims and identification of fraudulent billing. With this in mind, it’s important that service agreements include express provisions memorializing these TPA responsibilities and that plan fiduciaries adequately monitor their TPA’s performance in identifying fraud and recovering overpayments.
PBM Selection Continues Raising Liability Concerns for Plan Fiduciaries
The alleged systemic mismanagement of JP Morgan’s pharmacy benefit program forms the basis of a new class action out of New York. In this case, plaintiffs claim that defendants wrongly agreed to grossly inflated prescription drug prices which resulted in higher participant drug costs, higher premiums and, ultimately, lower employee wages. Plaintiffs point to the dramatically high prices the plan agreed to pay its PBM for generics that are available elsewhere at much lower cost as evidence of defendants’ mismanagement, conduct which they allege rises to a breach of their ERISA fiduciary duties.
KMK Comment: Sound familiar? This case follows a similar playbook to the Johnson & Johnson class action which, as reported in the January 2025 Monthly Minute, was largely dismissed due to lack of standing. Although the JP Morgan plaintiffs offer some distinguishing facts and circumstances, it will be interesting to see if the NY district court opts to distinguish this case from the NJ district court’s dismissal in Johnson & Johnson. In the meantime, plan administrators should take care to understand what’s at stake in PBM selection and how the plan’s pharmacy coverage works, prudently monitor PBMs and carefully negotiate contracts, and make a concerted effort to advocate for the best interests of plan participants and beneficiaries. Lastly, plan fiduciaries should properly document these processes in case their practices are subject to scrutiny in the future.
The KMK Law Employee Benefits & Executive Compensation Group is available to assist with these and other issues.
Lisa Wintersheimer Michel
513.579.6462
lmichel@kmklaw.com
John F. Meisenhelder
513.579.6914
jmeisenhelder@kmklaw.com
Antoinette L. Schindel
513.579.6473
aschindel@kmklaw.com
Kelly E. MacDonald
513.579.6409
kmacdonald@kmklaw.com
Rachel M. Pappenfus
513.579.6492
rpappenfus@kmklaw.com
KMK Employee Benefits and Executive Compensation email updates are intended to bring attention to benefits and executive compensation issues and developments in the law and are not intended as legal advice for any particular client or any particular situation. Please consult with counsel of your choice regarding any specific questions you may have.
