Employers are fiduciaries
ERISA Section 404 requires plan fiduciaries to act solely in the interest of participants and beneficiaries, for the exclusive purpose of providing benefits and paying reasonable plan expenses, and with the care, skill and prudence of a knowledgeable person in a similar role.
For a self-funded group health plan, plan assets pay for prescription drugs. Choosing a PBM, negotiating its contract and monitoring what it is paid are fiduciary decisions.
What prudence requires in practice
Prudence is judged by process. A defensible process usually includes competitive bidding, a clear understanding of every way the PBM is compensated, documented reasons for the selection, regular monitoring of claims and fees, and use of audit rights.
Relying on aggregate guarantees without claim-level data makes it hard to show that fees were reasonable, because the plan cannot see what it actually paid for.
Why the bar is rising
The Consolidated Appropriations Act, 2021 added broker and consultant compensation disclosure and annual prescription drug data reporting for group health plans.
The Consolidated Appropriations Act, 2026 goes further. It brings PBM services into ERISA's covered service provider disclosure rules, requires semiannual drug spending reports to plan sponsors, and requires 100% rebate pass-through for PBM contracts to be treated as reasonable. In January 2026 the Department of Labor also proposed a rule requiring PBMs to disclose compensation to fiduciaries of self-insured ERISA plans.
Participants have also tested these duties in court. Lawsuits filed in 2024 against Johnson & Johnson and Wells Fargo alleged that the companies overpaid for prescription drugs through their PBM arrangements.
A fiduciary checklist
- Document how the PBM was selected and why.
- Know every source of PBM compensation, stated in dollars.
- Secure claim-level data and unrestricted audit rights.
- Review drug spend and fees on a regular schedule and record the review.
- Ask your broker or consultant how they are compensated by the PBM.