On November 4, 2025, the U.S. District Court for the District of Rhode Island in Williams v. Bally’s Management Group, LLC dismissed a participant challenge to an employer’s tobacco surcharge under ERISA, rejecting both statutory discrimination and fiduciary breach theories. The court held that the plaintiff failed to state a claim that the surcharge violated ERISA’s nondiscrimination rules governing wellness programs and lacked Article III standing to pursue fiduciary breach claims on behalf of the plan. This decision offers important guidance to plan sponsors on wellness program design, disclosure practices, and the scope of ERISA fiduciary litigation risk.

Background

Bally’s Management sponsors a self-funded employee welfare benefit plan that provides medical benefits to employees of Bally’s subsidiaries. The Plan imposes a $65 per month tobacco surcharge (approximately $780 per year) on participants identified as tobacco users. The Plan offers a tobacco cessation program, completion of which removes the surcharge, at least prospectively.

The plaintiff in this case participated in the Plan and paid the surcharge. The parties dispute (1) whether the Plan is required to provide retroactive reimbursement of paid surcharges upon completion of the tobacco cessation program, and (2) whether Plan materials adequately disclose a reasonable alternative standard and physician-accommodation language, as required by applicable law.

The Court’s Holdings

No ERISA Violation for Prospective “Full Reward”

Tri-agency regulations require that outcome-based wellness programs that offer rewards such as premium discounts or the “absence of a surcharge” make available the “full reward” during the applicable reward period (typically, the plan year) to participants who comply with the program criteria, including a reasonable alternative standard.  Importantly, the regulations require that employees who qualify by using a reasonable alternative standard (or a waiver) must be given the same full reward as those who met the original standard.  

While the plaintiff argued that “full reward” requirement obligates the plan to remove the tobacco surcharge retroactively, the court disagreed, holding that the law does not require retroactive reimbursement of tobacco surcharges paid earlier in a plan year when a participant later satisfies a reasonable alternative standard. Although some courts have deferred to Department of Labor (DOL) preamble language suggesting year‑to‑date refunds are required, this court declined to defer to the agency interpretation where the regulation parrots statutory text.  The court reasoned that a participant who meets the wellness program criteria during the plan year under a reasonable alternative standard has the same reward as a participant who meets the criteria at the beginning of the year: the absence of a prospective surcharge.  On that reading, the court held that failure to offer retroactive refunds does not itself render the program discriminatory.

SPDs Satisfied Notice Obligations

The regulations also require that a plan must disclose the availability of a reasonable alternative standard to qualify for a reward under a wellness program in all plan materials describing the program. However, such disclosure is not required in materials that only mention the program.

The court found that language in the Summary Plan Descriptions (SPDs) for the plan tracked the DOL model disclosure and thus satisfied the requirement to inform participants of a reasonable alternative standard and the accommodation of physician recommendations. By contrast, the Benefits Guides merely referenced the availability of the wellness program and surcharge without describing program terms.  Under the regulations, the Benefits Guides only “mention” program availability – versus describing the terms of the program – and therefore do not trigger the full reasonable‑alternative disclosure requirements.  Consequently, the plan did not fail to meet its disclosure obligations with respect to the tobacco surcharge.

Fiduciary Breach Claims Dismissed for Lack of Standing

The court dismissed fiduciary breach claims under ERISA sections 502(a)(2) and 409, holding the plaintiff failed to allege a concrete, non‑speculative plan‑level injury that would be redressable by relief to the plan. Conclusory claims that the employer “pocketed” surcharges to the detriment of the plan were insufficient. The court noted that if the surcharge were unlawful, the appropriate remedy would run to participants (refunds), not to the plan, underscoring the challenge plaintiffs face when trying to present surcharge disputes as plan-wide fiduciary claims.

Administrative Exhaustion Not Required

The court declined to impose an exhaustion requirement, reasoning that the claims were statutory, not benefit denials. The court also held that the plan documents only provided an administrative process for adverse benefit determinations—an ill‑fit for challenges to the legality and structure of the surcharge and wellness program. The court’s approach aligns with the majority view that statutory ERISA claims need not be administratively exhausted, particularly where plan procedures are not designed to adjudicate such disputes.

Thompson Hine Takeaways; Practical Implications for Plan Sponsors and Administrators

Prospective rewards continue to be defensible

This decision strengthens the position that a “full reward” can be provided prospectively once a participant meets a reasonable alternative standard, without mandating retroactive refunds. While other courts, such as the Western District of Missouri in the Mehlberg v. Compass Group, USA, Inc. and the Eastern District of Virginia in Bokma v. Performance Food Group, Inc., have read the regulations differently, sponsors have a credible basis in statutory text to design programs that remove surcharges prospectively upon completion. That said, programs without retroactive refunds could remain a target for plaintiffs’ attorneys until more courts adopt the reasoning described in this opinion.

Consider using model language in SPDs

The court viewed SPD disclosures that substantially mirror the DOL’s sample notice as compliant, including the statement that physician recommendations will be accommodated. While using the model language is not required, plan fiduciaries may want to consider including model language in SPDs to describe a wellness program.

Be disciplined with additional communications

Materials such as benefits guides can mention the existence of a surcharge or program without triggering full reasonable alternative disclosure obligations, provided they do not describe program terms. Clear disclaimers in benefit guides directing participants to the governing plan documents help maintain this distinction.  If a tobacco surcharge is not described in an SPD or other governing plan document, enrollment materials identifying the tobacco and non-tobacco rates should include the required notice, including the reasonable alternative disclosure requirements.

Fiduciary litigation risk may be limited where plan injury is speculative

Attempts to reframe surcharge disputes as fiduciary breaches may fail absent plausible allegations of loss to the plan or fiduciary self‑dealing with plan assets.  Without plausible, well‑pled facts showing either a loss to the plan or fiduciary self‑dealing involving plan assets, attempts to convert surcharge disputes into fiduciary breaches are vulnerable.

Monitoring Developing Case Law

As the court acknowledged, other courts have taken a different view, particularly on “full reward” retroactivity and deference to agency position articulated in the preambles. Therefore, sponsors that offer or are considering offering programs without retroactive rewards should consult with ERISA counsel to evaluate the risk of doing so in light of developing case law.