Recent DOL Guidance Might Stave Off Some ERISA Litigation

Over the past couple of years, there have been dozens of lawsuits challenging the operation of workplace wellness programs, but some new guidance from the Department of Labor (DOL) could have an impact. 

The reality is that plan sponsors spend lots of time (and money) dealing with healthcare benefits and programs.  And over the past couple of decades, wellness programs have been popular as a means of not only encouraging better worker health and overall well-being but also reducing healthcare program costs.   

However, beginning in 2024, plaintiffs’ firms filed dozens of substantially similar suits against employers regarding tobacco-cessation programs, including Bass Pro Shops, Walmart, Target, Campbell Soup, PepsiCo, Progressive, Ascension, Tractor Supply and others. Estimates this year have ranged from approximately 50 to more than 75 pending or filed cases. If you work with employers that offer this type of program, odds are they’ve been keeping an eye on recent developments here. 

What’s the Law? 

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) amended the Internal Revenue Code (IRC), the Employee Retirement Income Security Act (ERISA), and the Public Health Service (PHS) Act to add, among other things, provisions prohibiting discrimination in eligibility, benefits, or premiums based on a health factor in group health insurance and group health plan coverage.[i]  

However, an exception to the general prohibition allows premium discounts or rebates or modification to otherwise applicable cost sharing (including copayments, deductibles, or coinsurance) or benefits in return for adherence to certain programs of health promotion and disease prevention, commonly referred to as wellness programs. 

Those health-contingent wellness programs generally may vary premiums based on a health-related standard if they satisfy several requirements, including: 

• Participants must have an opportunity to qualify for the reward at least annually  

• The reward generally cannot exceed 30% of the cost of coverage — or 50% for programs designed to prevent or reduce tobacco use 

• The program must be reasonably designed to promote health or prevent disease 

• A “reasonable alternative standard,” or waiver, must be available to individuals who cannot satisfy the initial standard  

• Participants satisfying the alternative standard must receive the “full reward”  

• The availability of the alternative must be disclosed in materials describing the program’s terms 

The litigation controversy has centered on what “full reward” means when someone completes the alternative standard after the plan year has begun.   

What’s the Issue? 

The preamble to the DOL’s 2013 regulations suggested that the participant should receive the reward retroactively for the entire plan year. Consequently, if someone completed a cessation program in April, the plan arguably had to refund the tobacco surcharges collected during January through March.[ii]   

That said, the regulatory text itself did not expressly say “retroactive,” “refund” or “beginning of the plan year.”  

What’s New 

In the just-issued (August 2026) FAQs about Affordable Care Act and Health Insurance Portability and Accountability Act Implementation Part 74, the DOL has now clarified that, pending further guidance or rulemaking, the  Departments of Labor, Health and Human Services (HHS), and the Treasury will not take enforcement action against a plan that provides the reward prospectively from the date the participant satisfies the alternative standard.[iii]   

However, it also noted that a plan may still provide retroactive relief, and its own terms might require it, but the agencies will not treat retroactive reimbursement as a federal enforcement requirement. 

That looks to be a significant change in practical enforcement position. Think of it as a prospective perspective. 

A Caution 

Part 74 also clarifies when/where the “reasonable alternative” disclosure must appear, specifically that it is in both: 

• Materials that describe the terms of the health-contingent wellness program  

• Communications telling an individual that the person failed to satisfy the initial standard 

What This Means 

However, and while it is not necessarily required in every document that merely mentions that a wellness program exists without describing how it operates, it also reinforces the need to include a complete and accurate notice in summary plan documents, enrollment materials, program descriptions and adverse-result communications that actually explain the surcharge or reward. 

Note also that while this position may blunt one of the more common aspects in this litigation, it does not eliminate the need for satisfaction on the other requirements; lack of a meaningful alternative, an improperly conditioned alternative, inadequate disclosure, failure to follow plan terms and questionable handling of the surcharge proceeds – the latter point, particularly use of the surcharge for the employer’s benefit, rather than the plan/participant, has specifically been raised as an element in allegations of a breach in fiduciary duty in several recent litigations.  

Bryn White, JD is an attorney at Endeavor Law, where she advises clients on plan design and documentation, fiduciary obligations, interpretation of complex legal requirements, and risk management. Bryn  is well-versed in an array of employee benefits matters, including health and welfare and retirement plans. 

Nevin Adams, JD is Chief Advisor Strategist at Endeavor Retirement. Nevin is the former Chief Content Officer and Head of Retirement Research for the American Retirement Association. 

[i] 29 C.F.R. § 2590.702 

[ii] Incentives for Nondiscriminatory Wellness Programs in Group Health Plans, 78 Fed. Reg. 33,158 (June 3, 2013) (codified at 29 C.F.R. § 2590.702), https://www.federalregister.gov/documents/2013/06/03/2013-12916/incentives-for-nondiscriminatory-wellness-programs-in-group-health-plans. 

[iii] U.S. Department of Labor, Employee Benefits Security Administration, FAQs about Affordable Care Act and Health Insurance Portability and Accountability Act Implementation Part 74 (Aug. 26, 2026), https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-74.