Sutter Health 403(b) Plan the Target of Excessive Fee Suit

Defendants are accused of failing to leverage the size of the plan to negotiate for lower investment and recordkeeping fees, among other things.

A lawsuit has been filed against fiduciaries of the Sutter Health 403(b) Savings Plan for breaches of their fiduciary duties under the Employee Retirement Income Security Act (ERISA).

The plaintiffs claim the defendants breached their fiduciary duties in multiple respects, including that:

  • They did not make decisions regarding the plan’s investment lineup based solely on the merits of each investment and what was in the best interest of plan participants, but instead selected and retained investment options in the plan despite the high cost of the funds in relation to other comparable investments;
  • They failed to investigate the availability of lower-cost share classes of certain mutual funds in the plan; and
  • They failed to monitor or control the “grossly excessive” compensation paid for recordkeeping services.

Saying that its assets qualified the 403(b) plan as a “jumbo plan in the defined contribution [DC] plan marketplace, and among the largest plans in the United States,” the complaint accuses the defendants of failing to leverage the size of the plan to negotiate for lower expense ratios for certain investment options and for a prudent payment arrangement for the plan’s recordkeeping and administrative fees.

The lawsuit also specifically calls out the plan fiduciaries’ “failure to utilize lower cost passively managed and actively managed funds,” including the use of Fidelity’s actively managed target-date fund (TDF) suite over its index TDF suite.

Sutter Health has not yet responded to a call for comment.

The plaintiffs say, “The structure of this plan is rife with potential conflicts of interest because Fidelity and its affiliates were placed in positions that allowed them to reap profits from the plan at the expense of plan participants.” The plan’s trustee is Fidelity Management Trust Co. and its recordkeeper is Fidelity Investments Institutional. The plaintiffs allege that lower-cost Fidelity mutual funds were available but not selected because the higher-cost funds returned more value to Fidelity.

Finally, the plaintiffs argue that Sutter Health and its board of directors—what the complaint calls the “monitoring defendants”—had a duty to monitor the investment committee defendants to ensure they were adequately performing their fiduciary obligations. Sutter and its board had a duty to ensure that the investment committee defendants “possessed the needed qualifications and experience to carry out their duties; had adequate financial resources and information; maintained adequate records of the information on which they based their decisions and analysis with respect to the plan’s investments; and reported regularly to the monitoring defendants,” the complaint states. The monitoring defendants are accused of not doing these things and of not removing committee members whose performance was inadequate.