Federal Court Dismisses Third Tobacco Premium Surcharge Lawsuit

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On February 27, 2026, a federal court in New York granted a motion to dismiss a lawsuit challenging an employer’s tobacco premium surcharge wellness program. This is the third such lawsuit that has been dismissed at the pleadings stage, with courts affirming that employers can offer programs that provide a full reward to participants who complete a tobacco cessation course within a certain timeframe, even if the premium surcharge is only removed prospectively.

Why it matters

These rulings are an important development in the ongoing legal battles over the legality of tobacco premium surcharges in employer-sponsored wellness programs. The decisions provide clarity and precedent for employers seeking to incentivize healthy behaviors through premium discounts, while also upholding ERISA’s requirement that participants who complete a wellness program’s alternative standard receive the program’s "full reward."

The details

The key issue in these cases is whether an employer can prospectively remove the premium surcharge when a participant completes a wellness program’s alternative standard, typically a tobacco premium cessation course. Plaintiffs have argued that ERISA requires employers to reimburse all premium surcharges paid for the full plan year, but courts have rejected this interpretation. The Pepsico court held that the employer’s program, which allowed participants to avoid the entire premium surcharge amount for the full plan year by completing the course between May 1 and November 30 of the prior plan year, met ERISA’s "full reward" requirement. The court also rejected the plaintiff’s fiduciary breach claim, finding the employer acted as a plan settlor, not a fiduciary, when designing and implementing the wellness program.

• On February 27, 2026, a federal court in New York granted a motion to dismiss the lawsuit.
• This is the third such lawsuit that has been dismissed at the pleadings stage.

What’s next

Motions to dismiss substantially similar complaints are pending in federal district courts across the country, and this evolving area of ERISA class action litigation will continue to be monitored.