Former employees at the Boston-based Children’s Hospital Corp. have filed a class action lawsuit against the health care facility, its board of directors and its retirement plan committee alleging plan sponsor breaches of fiduciary duty for paying excessive fees and failing to negotiate lower fees for the participants’ 403(b) tax-deferred annuity plan with recordkeeper Fidelity Investments.
The lawsuit alleges that plan fiduciaries breached their obligations of duty to participants under the Employee Retirement Income Security Act (ERISA). The plaintiffs allege that the defendants failed to fully disclose the expenses and risk of the plan’s investment options to participants; allowed unreasonable expenses to be charged to participants; and selected, retained and otherwise ratified high-cost and poorly performing investments, instead of offering more prudent alternative investments.
The size of the plan—which had 18,580 participants with account balances and assets totaling more than $1.1 billion as of December 31, 2020, placing it in the top 1% of all defined contribution (DC) plans by size—should have led plan sponsors to negotiate lower fees for recordkeeping and administrative services, the complaint alleges.
“Defined contribution plans with substantial assets, like the plan, have significant bargaining power and the ability to demand low-cost administrative and investment management services within the marketplace for administration of defined contribution plans and the investment of defined contribution assets,” the complaint states. “The marketplace for defined contribution retirement plan services is well established and can be competitive when fiduciaries of defined contribution retirement plans act in an informed and prudent fashion.”
The complaint was filed in U.S. District Court for the District of Massachusetts.
“The defendants’ failure to recognize that the plan and its participants were grossly overcharged for RK&A [recordkeeping and administrative] services and their failure to take effective remedial actions amounts to a shocking breach of their fiduciary duties to the plan,” the complaint adds. “To the extent the defendants had a process in place, it was imprudent and ineffective given the objectively unreasonable level of fees the plan paid for RK&A services. Had the defendants appropriately monitored the compensation paid to Fidelity and ensured that participants were only charged reasonable RK&A fees, plan participants would not have lost millions of dollars in their retirement savings over the last six-plus years.”
Early this year, the defendants in a similar lawsuit against Bronson Healthcare agreed to pay $3 million to settle charges of ERISA violations.
Meanwhile, another similar lawsuit alleging fiduciary breaches lodged against Natixis Investment Managers for excessive 401(k) fees will proceed after a motion to dismiss failed last month. Nokia of America is also among the latest targets of ERISA excessive fee suits, as a fiduciary breach complaint was filed against it in December.
Some plan sponsors are including or considering defensive provisions in retirement plan governing documents to mitigate or prevent litigation risks.