In April 2021, the U.S. District Court for the District of New Jersey denied the dismissal of an Employee Retirement Income Security Act lawsuit against Barnabas Health.
Now, a little more than a year later, the parties in the lawsuit have filed a settlement agreement that would see Barnabas Health, via its fiduciary insurer, pay $1.75 million to resolve the litigation, which involves two defined contribution retirement plans offered to employees. As stipulated in the text of the agreement, one-third of this amount may be used to cover the plaintiffs’ attorney fees.
In the original complaint, the plaintiffs alleged that the plans’ fiduciaries chose high-cost investments when lower-cost alternatives were available. They also suggested that the fiduciaries selected higher-cost share classes for funds when lower-cost share classes were available, and that there were lower-cost alternative funds available that performed better over the long-term. Finally, the lawsuit alleged that the fiduciaries failed to monitor or control the plans’ recordkeeping expenses.
In their motions to dismiss the case, the Barnabas defendants argued that the plaintiffs invested in only some of the funds cited, and that they lacked standing to press claims based on the funds in which they did not invest. The court’s prior order rejecting the defense’s dismissal motion found that the participants had sufficiently alleged an injury to their own investments by virtue of the fiduciaries’ mismanagement to have standing in the case.
Beyond the settlement payment of $1.75 million, the settlement agreement also includes a requirement that the Barnabas defendants conduct a request for proposals process regarding the plans’ recordkeeping fees and services. This must be done within 18 months of the effective settlement date.
Notably, the settlement agreement emphasizes that Barnabas Health does not admit any wrongdoing or legal liability of any kind, whether legal or factual. The defendants state that they are entering into the settlement agreement only to eliminate the burden and expense of further litigation.
According to expert ERISA attorneys, the challenging economics of ERISA litigation have caused many defendants to follow the route now being taken by Barnabas, wherein they pay sizable settlement agreements while maintaining that they did not commit the alleged fiduciary breaches. When an employer faces a class action ERISA lawsuit that clears a motion to dismiss, the choice for the plan sponsors is either to continue to fight the litigation, which often becomes incredibly expensive, or to pay to settle a claim that might only involve a couple of million dollars. Attorneys also note that, as in this case, input from insurance carriers is a definite consideration in whether a case settles.
The full text of the settlement agreement is available here.