A settlement agreement has been filed in the U.S. District Court for the Middle District of North Carolina in a case against Novant Health over excessive fees and other fiduciary violations in the administration of its retirement plans.
The settlement calls for monetary relief in the amount of $32 million, as well as non-monetary relief, including that Novant will adopt a new investment policy statement and conduct a competitive bidding process for recordkeeping, investment consulting and participant education services for the plans.
The lawsuit alleges that Great-West Life & Annuity Insurance Company, the administrative and recordkeeping service provider for the plans, received excessive compensation of approximately $8.6 million between 2009 and 2012. Additional payments received by Great-West from the investment companies providing the plan’s investment options constituted excessive amounts of revenue sharing, the compliant states, which amounted to “kick-backs.”
According to the complaint, D.L. Davis & Company, a registered broker of MML Investors Services, a subsidiary of the Massachusetts Mutual Life Insurance Co., was paid excessive fees up to $9.6 million between 2009 and 2012 in the form of “commissions.” The complaint states that D.L. Davis also received a second source of revenue in the form of “kick-backs” from the managers of the plan investment options.
NEXT: Novant disagrees with the claims
In a statement of non-opposition in support of the proposed settlement, Novant Health stated it disagrees with the claim that it breached its fiduciary duties under the Employee Retirement Income Security Act (ERISA) by maintaining retail class investment funds in the retirement plans rather than lower-cost institutional shares or other lower cost alternatives, causing participants to pay Great-West and D.L. Davis excessive fees.
For example, Novant says the claims fail to consider the plans’ receipt and use of revenue sharing. The company maintains that revenue sharing was used to cover the costs of plan administration, so with the revenue sharing, the retail funds cost the same as, and in some cases less than, the institutional funds the lawsuit claims it should have offered. Novant also disagrees with the claims concerning fees paid, and says it engaged an outside consultant to review administrative services and fees.
However, it says the proposed settlement would provide a lasting benefit to participants without costly, years-long litigation.
Other non-monetary relief specified in the settlement agreement call for Novant to ensure that the plans’ administrative service providers are not reimbursed for their services based on a percentage-of-plan-assets basis, and review all current investment options in the plans and revise the investment options, as needed, ensuring that those options are selected or retained for the exclusive best interests of participants.
The agreement also calls for Novant to remove Davis, and related entities, from any involvement with the plans; not enter into any new real estate or business relationships with Davis and related entities; not offer any Mass Mutual investments in the plans or any other investment that provides compensation to Davis and related entities; provide accurate communications to participants in the plans; and not offer any brokerage services to the plans.