New Excessive Fee Suit Alleges Familiar 401(k) and 403(b) Plan Breaches

A new Employee Retirement Income Security Act (ERISA) lawsuit has been filed in the U.S. District Court for the District of New Jersey, naming as defendants Barnabas Health and various retirement plan committees and individuals alleged to be fiduciaries of the health care system’s 401(k) and 403(b) defined contribution (DC) retirement plans.

Allegations in the suit closely parrot other complaints filed in the past year against health care systems by the law firm Capozzi Adler—including an extensive recitation of basic facts about ERISA and the fiduciary duty, as well as some repeated typos. All of the suits claim, with minor variations in the particular details, that the plan sponsors being sued have failed to use their significant bargaining power to negotiate better fees for investments and/or recordkeeping services.

“As jumbo plans, the [Barnabas] plans had substantial bargaining power regarding the fees and expenses that were charged against participants’ investments,” the new complaint states. “Defendants, however, did not try to reduce the plans’ expenses or exercise appropriate judgment to scrutinize each investment option that was offered in the plans to ensure it was prudent.”

The complaint states that one indication of the defendants’ alleged failure to prudently monitor the plans’ funds is that the plans have retained several actively managed funds despite the fact that these funds charged “grossly excessive fees compared with comparable or superior alternatives.”

“Another indication of defendants’ failure to prudently monitor the plans’ funds is that several funds during the class period were more expensive than comparable funds found in similarly sized plans,” the complaint states. “In 2018, for example, many of funds in the 401(k) plan had expense ratios well above the median expense ratios for similarly sized plans. … In several instances during the class period, defendants failed to prudently monitor the plans to determine whether the plans were invested in the lowest-cost share class available for the plans’ mutual funds. … There is no good-faith explanation for utilizing high-cost share classes when lower-cost share classes are available for the exact same investment. Defendants have no reasonable excuse for not knowing about the immediate availability of these lower-cost share classes.”

Just like the many other suits filed by Capozzi Adler, the complaint alleges that it is not prudent to select higher cost versions of the same fund even if a fiduciary believes—as it appears defendants here did—fees charged to plan participants by the “retail” class investment were the same or better as the fees charged by the “institutional” class investment, net of the “revenue sharing” paid by the funds to defray the plans’ recordkeeping costs.

The full text of the complaint is available here. Barnabas Health has not yet responded to a request for comment about the lawsuit.