NJ Medical System Hit With 403(b) Mismanagement Complaint

Current and former participants in a New Jersey health network’s 403(b) plan on October 27 filed a class action suit alleging a breach of fiduciary duties in the administration, operation and management of the plan.

In the case, McKendry et al. v. Inspira Medical Centers, Inc. et al., plaintiffs sued Inspira Medical Centers Inc., as well as the network’s board of trustees and administrative committee, in the U.S. District Court for the District of New Jersey. Plaintiffs are seeking to recover losses “caused by the mismanagement of the plan, including the imprudent selection and retention of investment options, the payment of excessive and undisclosed compensation to the plan’s recordkeeper, the improper and disloyal use of plan participant forfeitures, prohibited transactions with a party in interest, and Inspira’s failure to fund the plan with contributions owed on wages that Inspira unlawfully failed to pay.”

Plaintiffs alleged Inspira failed to discharge its fiduciary duties under the Employee Retirement Income Security Act in “at least five interrelated respects.”

Five Allegations

The complaint’s first allegation was that Inspira “imprudently selected and retained the plan’s primary capital preservation option, the Lincoln Financial Group Stable Value Account.” The suit stated that the account “held tens of millions of dollars of plan assets in Lincoln’s general account, exposing participants to Lincoln’s single-entity credit risk while allowing Lincoln to retain undisclosed ‘spread’ income.” The suit also alleged that “prudent fiduciaries of comparable plans obtained higher-crediting, lower-risk stable value products from competing providers.”

The second allegation was that Inspira “imprudently selected and retained a set of actively managed investment options.” The options allegedly charged participants fees for active management while “delivering negative risk-adjusted returns and exposing participants to excessive risk.”

Third, the suit claimed that Inspira “failed to monitor and control the compensation paid to Lincoln for recordkeeping and administrative services.” The plan allegedly paid Lincoln direct compensation that “exceeded a reasonable per-participant fee,” and Inspira failed to account for the “substantial” additional, indirect compensation Lincoln received, none of which the plan reported as indirect compensation on its Form 5500 filings.

The suit also alleged that Inspira “improperly and disloyally used plan participant forfeitures.” The complaint acknowledged that the plan document gave Inspira a choice among competing uses of forfeitures but said rather than applying the forfeited amounts—which are plan assets—to reduce the recordkeeping and administrative expenses charged to participants’ accounts, Inspira used them to reduce their own contribution obligations.

The complaint further stated that Inspira “had a direct financial stake” in its choice of how to use plan assets and “made the same self-interested choice every year of the class period without any investigation, deliberation or independent advice.”

“Inspira was at all times financially sound and faced no risk of defaulting on its contribution obligations, so nothing about the plan’s circumstances justified using plan assets to save Inspira money at the direct expense of the plan and its participants,” the complaint stated.

Where the DOL Stands

While the court’s view of any of the plaintiffs’ arguments is unknown, the forfeiture claim is counter to the position the Department of Labor has taken in several cases since 2025. The DOL has filed at in support of employers in forfeiture cases.

The fifth and final allegation was that Inspira “failed to fund the plan with the employee salary deferrals and employer matching and other contributions that were owed on wages Inspira unlawfully failed to pay.” The suit cites three separate wage-and-hour actions where it claims Inspira “systematically underpaid hourly employees in violation of the federal Fair Labor Standards Act and New Jersey wage-and-hour law.” The complaint stated that “because plan contributions are calculated as a percentage of compensation, Inspira’s violations caused the plan to be underfunded.”

“An ERISA fiduciary must discharge its duties ‘with the care, skill, prudence, and diligence’ of a prudent person ‘acting in a like capacity and familiar with such matters,’ the complaint stated. “This requires a prudent process for selecting and monitoring the plan’s investments and service providers, for controlling their costs and for administering plan assets—including forfeitures—solely in the interest of participants.”

The complaint’s allegations concluded with a statement that the “information necessary to make prudent decisions … was available to [Inspira] at all relevant times.”

Plaintiffs are represented by Edelson Lechtzin LLP and the proposed class is represented by Bryson Harris Suciu & Demay PLLC. An attorney for Inspira has not been identified.

Inspira declined to comment and PLANADVISER is awaiting comment from the plaintiffs.