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<img style="max-width: 100%;height: auto" width="825" height="347" src="https://www.erisalitigation.com/wp-content/uploads/sites/1017/2019/07/CrossPlanOffsetting-1-825x347.jpg" class="attachment-lxb_af_3_of_4-wide size-lxb_af_3_of_4-wide wp-post-image" alt="" loading="lazy" />
			A rapidly growing line of ERISA cases seeks to impose fiduciary standards of conduct&mdash;developed by courts largely in the retirement plan context&mdash;to health plan design choices. &nbsp;The most recent, Barbich et al. v. Northwestern University et al., No. 1:25-cv-06849 (N.D. Ill.) filed on June 20, 2025, involves a new and potentially disruptive twist: plaintiffs allege that the university violated ERISA fiduciary duties by offering an allegedly imprudent health plan option.
Specifically, plaintiffs claim that Northwestern University improperly included a higher-premium, lower-deductible PPO alongside a lower-premium, higher-deductible PPO, arguing that the higher-premium option provided no meaningful financial advantage for participants. &nbsp;The theory pushes the boundaries of established ERISA fiduciary principles, raising questions about whether fiduciary duties under ERISA may be expanded to require scrutiny of the financial structure of each option offered under employer health plans.&nbsp; The case also includes more traditional allegations that certain participant communications were misleading.
<h2 class="wp-block-heading">Plaintiffs&rsquo; &ldquo;Financial Dominance&rdquo; Argument</h2>
Plaintiffs base their fiduciary claims on a concept known as &ldquo;financial dominance.&rdquo;&nbsp; Under this theory, a health plan option is considered financially dominated &ldquo;when there is another option that results in lower total out-of-pocket expenses to participants, inclusive of premiums and regardless of the amount of medical care received.&rdquo;&nbsp; Specifically, plaintiffs allege that the &ldquo;Premier PPO,&rdquo; which features higher monthly premiums and lower deductibles, is financially dominated by the &ldquo;Value PPO,&rdquo; which is a high deductible health plan that has lower monthly premiums but higher deductibles and that therefore offering the Premier PPO constitutes a breach of fiduciary duty.&nbsp; Plaintiffs separately allege the university&rsquo;s Summary Plan Description (SPD) inaccurately suggested participants could financially benefit from choosing the Premier PPO under certain scenarios.
Using &ldquo;financial dominance&rdquo; as a basis for ERISA fiduciary breach claims is novel. However, plaintiffs&rsquo; theory does not fully account for legitimate non-financial reasons participants might select a higher-premium plan&mdash;such as predictable monthly expenses and risk avoidance.
<h2 class="wp-block-heading">Key Legal Issues</h2>
The Barbich lawsuit raises several critical legal issues that the district court may need to address, depending on how the litigation proceeds.
<h3 class="wp-block-heading">Fiduciary vs. Settlor Functions</h3>
A threshold question raised by plaintiffs&rsquo; claims is whether fiduciary standards of conduct apply to the choices Northwestern University made when designing the options available under its health plan.&nbsp; ERISA distinguishes fiduciary functions&mdash;which involve responsibilities such as discretionary management or administration of benefits or any authority or control with respect to plan assets&mdash;from settlor functions, which are broader business decisions generally exempt from fiduciary oversight, including decisions about designing or changing benefit plans.&nbsp; ERISA&rsquo;s fiduciary duties also include that a benefit plan must be administered in accordance with its terms to the extent that those terms are consistent with ERISA.
Historically, courts have consistently treated decisions about plan design&mdash;such as selecting or amending retirement plan benefits&mdash;as settlor functions exempt from fiduciary scrutiny.&nbsp; Plaintiffs&rsquo; attempt to recast the university&rsquo;s health plan design choices as fiduciary decision-making seeks to extend established ERISA principles into settlor territory.
To support their position, plaintiffs attempt to analogize their case to retirement-plan fiduciary precedent.&nbsp; Plaintiffs cite the Supreme Court decision in Tibble v. Edison International, recognizing fiduciaries&rsquo; ongoing duty to monitor retirement investments. However, Tibble specifically addressed fiduciaries&rsquo; ongoing obligation to monitor existing investment options when they are charged with authority over the management of retirement plan assets&mdash;not the initial selection or design of benefit options in health plans or any benefit plan.&nbsp; Given these differences, courts may hesitate to extend the reasoning in Tibble to health plan design decisions.
<h3 class="wp-block-heading">Application of Hughes v. Northwestern</h3>
Plaintiffs&rsquo; complaint cites the Supreme Court&rsquo;s 2022 decision in Hughes v. Northwestern, which involved fiduciary breach allegations regarding fees and investment choices in university-sponsored 403(b) retirement plans.&nbsp; In Hughes, the Supreme Court issued a narrow ruling, holding that offering an adequate selection of investment options, by itself, does not automatically shield fiduciaries from claims that some of those options were imprudent.&nbsp; Plaintiffs attempt to argue by analogy that health plan fiduciaries cannot avoid liability merely by providing a variety of plan options if one is allegedly imprudent.&nbsp; However, like Tibble, the Supreme Court&rsquo;s decision in Hughes was focused on fiduciary management of plan assets and did not address the initial selection of plan options.&nbsp; Whether the reasoning in Hughes extends beyond retirement investments to the structure of health plan offerings remains a key question for the court in Barbich.
<h3 class="wp-block-heading">&ldquo;Meaningful Benchmark&rdquo; Requirement</h3>
In investment fee and performance litigation, many courts require plaintiffs to plausibly allege&mdash;at the motion to dismiss stage&mdash;that the challenged option can be meaningfully compared to a supposedly superior alternative.&nbsp; Plaintiffs&rsquo; complaint compares the Premier PPO to the university&rsquo;s Value PPO primarily based on quantitative factors such as premiums, deductibles, and out-of-pocket maximums.&nbsp; However, these plan options differ meaningfully in non-financial aspects&mdash;such as predictable monthly expenses and participant risk tolerance.&nbsp; These qualitative differences are significant, potentially complicating plaintiffs&rsquo; ability to establish the Value PPO as a meaningful benchmark against which the Premier PPO can properly be judged as imprudent.
<h2 class="wp-block-heading">Thompson Hine Takeaways</h2>
The Barbich litigation is in its early stages.&nbsp; Depending on how the case proceeds, the district court may need to address foundational issues, including standing, the fiduciary versus settlor distinction, and whether plaintiffs have plausibly stated claims applicable in the health plan context.&nbsp; If the district court is receptive to plaintiffs&rsquo; theory, fiduciary obligations in employer-sponsored employee benefit plans&mdash;both health and retirement plans&mdash;could expand, introducing potentially difficult considerations for employers structuring benefit options. &nbsp;Taken to one logical conclusion, if these theories gain traction, employers could face increasing risk that their decisions regarding how to structure and even whether to offer a health plan may need to be defended in court.&nbsp; Conversely, dismissal or narrowing of plaintiffs&rsquo; claims could reaffirm the view that initial benefit design decisions are settlor functions outside ERISA fiduciary oversight. Employers and plan fiduciaries should monitor developments in this litigation. &nbsp;In the interim, plan fiduciaries may wish to review enrollment materials and any other plan-related documentation to ensure plan options are described in a way that aligns with the plan&rsquo;s structure and supports informed participant decision-making.&nbsp; In addition to the novel theories described above, the Barbich plaintiffs challenged statements made in participant communications describing the two PPO options as allegedly misleading, which&mdash;if proven true&mdash;could call into question whether plan fiduciaries exercised their discretionary authority in administering the plan in a manner consistent with ERISA&rsquo;s fiduciary requirements. &nbsp;Employers and plan fiduciaries should ensure that any communications describing plan options are not misleading and provide sufficient information to plan participants.

Fiduciary Claims May Leave Health Plans on Life Support

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