On February 9, 2026, in Stern v. JPMorgan Chase & Co., a New York federal district court allowed an ERISA class action to proceed in part, finding participants plausibly alleged prohibited transactions arising from JPMorgan’s PBM contracting and related payments. As a result, the case will move forward to the next phase, which means increased costs for JP Morgan as litigation and discovery proceed. The decision highlights increased litigation risk for plan sponsors around PBM selection and oversight.
The Complaint
The plaintiffs allege that JPMorgan, as group health plan sponsor/administrator, breached the duty of prudence by failing to negotiate PBM terms that controlled drug costs, resulting in higher participant premiums and out-of-pocket (OOP) expenses. They also challenge the use of a traditional PBM model with opaque pricing and compensation (e.g., retained rebates and spread pricing) and allege steering to higher-cost drugs.
The plaintiffs also assert a duty-of-loyalty breach, claiming that JPMorgan knowingly permitted pricing practices that benefited the PBM at the plan’s expense and that alleged industry relationships created conflicts of interest.
Finally, and most notably, the plaintiffs claim that the PBM was an ERISA party in interest and that payments for PBM services were prohibited transactions because the PBM’s total compensation (including spread pricing and retained rebates) was unreasonable, thereby defeating an exemption.
The defendants moved to dismiss, arguing that the plaintiffs lacked standing and failed to state viable ERISA claims.
The Court’s Ruling
On standing, the court rejected the plaintiffs’ premium-based injury theory as too speculative because JPMorgan controlled contribution rates and premiums did not track prescription drug costs. The court nevertheless found standing based on alleged overpayments (i.e., OOP expenses) for certain drugs tied to PBM price markups.
Even with standing, the court dismissed the prudence claim because it largely challenged plan design choices (e.g., whether to use pass-through pricing, specialty carve-outs, or lower-cost pharmacies), which are settlor functions, not fiduciary functions. The court also dismissed the loyalty claim, finding it targeted JPMorgan’s broader business activities rather than fiduciary conduct in plan administration.
Notably, the court allowed the prohibited transaction claim to proceed. It held that JPMorgan acted as a fiduciary when selecting and renewing the PBM arrangement and making related payments, and that the plaintiffs plausibly alleged a prohibited transaction. Under the U.S. Supreme Court decision in Cunningham v. Cornell, the plaintiffs generally need only allege that the fiduciary caused the plan to transact with a service provider; the burden then shifts to the defendants to show the services were necessary and the service provider’s compensation was reasonable. (See NFP’s article on Cunningham.)
Employer Takeaway
The case is notable because it is the first in a recent wave of class action fiduciary-breach lawsuits to survive a defendant’s dismissal motions. (In other cases, including the Wells Fargo case covered in our article in this edition of Compliance Corner, the courts have dismissed all of the plaintiffs’ claims.) Still, the outcome is not legally surprising. Cunningham (a recent case setting legal precedent on this issue) sets a low pleading bar for prohibited transaction claims, raising concerns about a potential surge in similar cases. However, JP Morgan will have the chance during the discovery stage of litigation to show the PBM’s compensation was reasonable and that a prohibited transaction exemption applies; however, discovery means increased litigation costs.
Plan fiduciaries should track this development and continue to prudently select and monitor service providers. Accordingly, fiduciaries should document PBM selection/renewal decisions, understand sources of PBM compensation (rebates, spreads, and fees), and review performance and pricing terms on an ongoing basis.
NFP will monitor litigation in this area and provide relevant updates in Compliance Corner.
Read the court’s decision, Stern v. JPMorgan Chase & Co., Opinion and Order.