The Cerner Corp. now faces a second excessive fee fiduciary breach lawsuit.
The new lawsuit, filed in the U.S. District Court for the District of Kansas, closely mirrors another pending Employee Retirement Income Security Act (ERISA) challenge filed earlier this year against the Cerner Corp. In that case, the defense has filed a motion to compel arbitration because the plaintiff allegedly signed an arbitration agreement. While it repeats very similar claims, this new lawsuit seeks to establish that the plaintiff did not sign such an agreement.
Underlying both challenges are allegations that the Cerner Corp. retirement plan, which has more than $2 billion dollars in assets, qualifies as a large plan in the defined contribution (DC) marketplace and, therefore, has substantial bargaining power regarding the fees and expenses charged. The plaintiffs say the defendants 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.”
Also, during the class period, the plaintiffs say the defendants continuously designated Cerner stock (i.e., an undiversified investment) as the default investment option for the employer portion of contributions instead of well-diversified options, “even though Cerner’s stock performed poorly in comparison to its benchmark, thereby imposing more risk and risk-concentration on participants—something that was in Cerner’s interests but not in the interest of the participants.”
“Defendants’ choice to use Cerner stock as the company match contribution during the class period was an action that put the interests of Cerner ahead of the interests of the plan participants and was not in the sole interests of the participants,” the new complaint states. “Using Cerner stock as the company match contribution was in Cerner’s interests. It buoyed Cerner’s stock price, provided capital to Cerner and helped Cerner preserve cash, while making tax deductible contributions to the plan.”
According to the new complaint, in 2016, 37% of the assets in Cerner’s plan were invested in Cerner stock, substantially more than the roughly 10% average for publicly held companies and the 10% limit imposed by federal law on defined benefit (DB) plans.
Beyond this issue, the defendants are further accused of failing to take advantage of the lowest cost share class for many of the mutual funds within the plan, and failing to consider collective trusts, commingled accounts or separate accounts as alternatives to the mutual funds in the plan, despite their lower fees.
“There is no good-faith explanation for utilizing high-cost share classes when lower-cost share classes are available for the exact same investment,” the complaint states. “The plan did not receive any additional services or benefits based on its use of more expensive share classes. The only consequence was higher costs for plan participants.”
Like the first lawsuit in this matter, this one also accuses the defendants of failing to monitor or control the plan’s recordkeeping expenses. The lawsuit alleges the plan fiduciaries failed to track the recordkeeper’s expenses by demanding documents that summarize and contextualize the recordkeeper’s compensation, such as fee transparencies, fee analyses, fee summaries, relationship pricing analyses, cost-competitiveness analyses and multi-practice and standalone pricing reports.
The full text of the new complaint is available here.