Another Health System Faces ERISA Excessive Fee Challenge

In yet another lawsuit involving the law firm Capozzi Adler, violations of the fiduciary duties of prudence and loyalty are alleged.

A new Employee Retirement Income Security Act (ERISA) lawsuit has been filed in the U.S. District Court for the Eastern District of Pennsylvania, naming as the defendant Universal Health Services Inc.

The complaint echoes the numerous excessive fee lawsuits that have been filed in recent years against all manner of large U.S. employers—from major universities to financial services companies to health care systems.

According to the plaintiffs in the new lawsuit targeting Universal Health Services, the retirement plan in question holds more than $1.3 billion, qualifying it as a large plan in the defined contribution (DC) plan marketplace and among the largest plans in the United States.

“As a large plan, the plan had substantial bargaining power regarding the fees and expenses that were charged against participants’ investments,” the complaint states. “Defendants, however, did not try to reduce the plan’s expenses or exercise appropriate judgment to scrutinize each investment option that was offered in the plan to ensure it was prudent.”

The plaintiffs specifically allege that the defendants, as fiduciaries of the plan as that term is defined under ERISA Section 3(21)(A), breached their duties “by failing to objectively and adequately review the investment portfolio with due care to ensure that each investment option was prudent, in terms of cost; and by maintaining certain funds in the plan despite the availability of identical or materially similar investment options with lower costs and/or better performance histories.”

The complaint continues: “To make matters worse, defendants failed to consider lower cost collective trusts that were available to the plan as alternatives to certain mutual funds in the plan. Defendants’ mismanagement of the plan, to the detriment of participants and beneficiaries, constitutes a breach of the fiduciary duties of prudence and loyalty. … Their actions were contrary to the actions of a reasonable fiduciary and cost the plan and its participants millions of dollars.”

Similar to a rash of other lawsuits involving the law firm Capozzi Adler, this suit also names as defendants the company’s board of directors, arguing that they are in effect functional fiduciaries of the plan given their authority over the Universal Health Services organization. Likewise, the lawsuit names 30 individual defendants holding various roles with the organization.

Other allegations leveled in the complaint include that the majority of funds in the plan stayed relatively unchanged during the class period, which the plaintiffs suggest is evidence of a flawed fiduciary monitoring process.

“In 2018, a majority of the funds in the plan, at least 20 out of the plan’s 31 funds (65%), were much more expensive than comparable funds found in similarly sized plans (plans having over a billion dollars in assets),” the complaint states. “The expense ratios for funds in the plan in some cases were up to 203% (in the case of the Northern Small Cap Value fund) and 218% (in the case of the MSIF Small Cap Growth IS fund) above the median expense ratios in the same category.”

Universal Health Services has not yet responded to a request for comment. The full text of the complaint is available here.