Key Takeaways
- A Minnesota federal court dismissed a class action challenging Target’s tobacco surcharge, holding that the company’s interpretation of its plan documents was reasonable.
- The court held that ERISA doesn’t require the physician-accommodation notice included in DOL regulations, applying post-Loper Bright reasoning to decline to defer to agency guidance.
- Employers with wellness programs should review plan documents, confirm reimbursement mechanics and monitor pending appeals in several circuits.
On July 22, 2026, the U.S. District Court for the District of Minnesota dismissed a putative class action challenging Target Corporation’s tobacco surcharge under its employer-sponsored health plan. In Williams v. Target Corp., the court held that Target’s wellness program did not violate ERISA because Target reasonably interpreted its summary plan description (SPD) to provide the required full reward and because ERISA does not impose a physician-accommodation notice requirement.
The decision gives employers a useful, employer-favorable road map for defending wellness programs, but it does not end the broader litigation trend. Target is among dozens of employers facing proposed class actions over tobacco surcharge wellness programs, and district courts have reached different conclusions on what ERISA requires versus what U.S. Department of Labor (DOL) guidance demands.
Challenged Wellness Program
Target sponsors an ERISA-governed employee welfare benefit plan. Under the plan, tobacco users pay higher premiums through a tobacco surcharge, totaling about $800 a year. Participants could avoid the surcharge by being tobacco-free, quitting tobacco for six months or completing Target’s designated tobacco cessation program. Under ERISA, wellness programs such as Target’s must meet certain requirements outlined in the Public Health Service Act to comply with ERISA’s antidiscrimination rules.
The named plaintiffs were Joseph Williams, a current employee with a dependent who smokes, and Mark Bessey, a former employee who uses tobacco. They alleged that Target violated ERISA by failing to provide the required “full reward” associated with the tobacco-free program, failing to provide notice that physicians’ recommendations would be accommodated, and breaching fiduciary duties by administering an allegedly unlawful plan and mismanaging surcharge proceeds. The parties agreed for purposes of the motion that providing the “full reward” requires retroactive reimbursement of surcharges paid in a particular plan year.
The Court’s Decision
The court granted Target’s motion to dismiss. First, the court concluded that the plaintiffs had standing to pursue their surcharge theory, agreeing with the vast majority of courts that have addressed that issue so far. Then, however, the court held that Target’s interpretation of its SPD was reasonable and entitled to deference because the plan gave Target discretionary authority to construe plan terms. Contrary to the plaintiffs’ arguments, the court accepted Target’s interpretation of SPD language that the $800 surcharge operated as an annual, all-or-nothing obligation, meaning that a participant who qualified for the exemption during the plan year was entitled to have the annual obligation reset to zero and receive retroactive reimbursement of earlier deductions.
The court also rejected the plaintiffs’ theory that ERISA required Target to tell plan participants that it would accommodate their physician’s recommendations regarding alternatives to tobacco cessation. Applying Loper Bright Enterprises v. Raimondo, the court independently interpreted the statute and concluded that ERISA requires disclosure of the availability of a reasonable alternative standard or waiver, which Target satisfied by telling participants about its tobacco cessation program. The court went on to hold that ERISA does not require plan sponsors to disclose that they will accommodate a participant’s physician recommendations. The court declined to enforce DOL regulations to the extent they impose additional notice requirements, reasoning that the requirement went beyond the statute and was not supported by a specific delegation of authority. The court also distinguished other tobacco surcharge cases, noting that most of those opinions did not analyze this issue under Loper Bright.
The fiduciary duty claims failed as well. Contrary to other district court decisions on the issue, the court held that the plaintiffs lacked standing to pursue the claim that Target misused surcharge proceeds because they did not identify a concrete, particularized injury from the alleged self-dealing, and the remaining fiduciary duty theory failed because it depended on an ERISA violation the court found did not exist.
Why It Matters
For employers, the decision underscores that plan language and administrative discretion can be central to defending tobacco surcharge programs. Target prevailed in part because the court focused on the SPD’s annual framing of the surcharge and the plan’s grant of discretionary authority — not merely on the plaintiffs’ competing interpretation of the same language.
The decision also highlights the continued importance of monitoring post-Loper Bright challenges to agency regulations. The court’s refusal to defer to the DOL’s physician-accommodation notice regulation may be useful to employers in similar cases.
Practical Takeaways for Employers
Review plan documents and summary plan descriptions. Employers with tobacco surcharges or other outcome-based wellness programs should confirm that plan documents clearly describe the incentive, the surcharge, any reasonable alternative standard and the availability of the full reward for complying with the incentive program.
Confirm how the full reward is administered. The court assumed that providing the full reward requires retroactive reimbursement for participants who satisfy the reasonable alternative standard during the plan year, and Target prevailed because the court accepted that its plan interpretation provided that reimbursement. Employers should test whether payroll, benefits administration and participant communications align with the plan’s intended reimbursement mechanics.
Evaluate notice language, but do not overread the ruling. The court held that ERISA does not require physician-accommodation notice, but other courts have reached different conclusions. Employers should review whether their wellness program notices describe the reasonable alternative standard and waiver process in a way that is defensible under statutory text and current regulatory expectations.
Track litigation and appeals. Appeals are pending in the First, Second, Sixth and Seventh circuits on related tobacco surcharge issues. Employers operating across jurisdictions should continue to monitor developments before making broad design changes based on a single district court decision.
For questions about tobacco surcharge litigation, ERISA wellness program compliance, employee benefits communications or related wage-and-hour considerations, contact the authors, your McGuireWoods contact or a member of the firm’s labor and employment team or Employee Benefits Practice Group.