NFP Named as Defendant in Parallel Molina Healthcare ERISA Suit

The plaintiffs in the suit, who have already sued their plan sponsor, are now bringing a service provider into the litigation.

A new Employee Retirement Income Security Act lawsuit has been filed in the U.S. District Court for the Central District of California, naming NFP Retirement Inc. as the defendant.

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The new lawsuit against NFP is closely related to a complaint filed in March, and it includes the same named plaintiffs, who are engaging in litigation individually and as representatives of a proposed class of participants and beneficiaries in a retirement plan offered to the employees of Molina Healthcare.

The original lawsuit targeting Molina Healthcare directly says the defendants caused plan participants to invest in flexPATH’s “untested target-date funds,” which allegedly replaced “established and well-performing target-date funds” previously offered to participants. The defendants are also accused of failing to use the Molina Healthcare plan’s size and bargaining power to obtain reasonable investment management fees.

The new lawsuit almost completely mirrors the original compliant, though it is distinct in that it argues that NFP is also a fiduciary to the retirement plan in question, based on the nature of the advice it allegedly provided to the plan sponsor, and it should therefore face the court’s scrutiny alongside the Molina defendants.

NFP shared the following statement regarding the litigation: “We believe this case is without merit and will vigorously defend ourselves against the plaintiffs’ allegations.”

“Instead of acting in the exclusive best interest of participants, NFP caused the plan to invest in flexPATH’s untested target-date funds, which replaced established and well-performing target-date funds used by participants to meet their retirement needs,” the complaint states. “NFP also caused unreasonable investment management expenses to be charged to the plan.”

Both the new and original lawsuit allege that because flexPATH invested the underlying assets of the TDFs in BlackRock TDFs, additional fees were charged compared to the fees that would have been charged to investors had they invested directly in BlackRock’s funds. The BlackRock LifePath Index TDFs allegedly charge 8 basis points, while flexPATH charged plan participants 26 bps.

“Molina added the flexPATH Index target-date funds to the plan, and NFP presented them to Molina for use in the plan, even though flexPATH’s target-date fund management style had never been used in any target-date fund offered in a 401(k) plan,” the complaint states. “The novel and untested management style of the flexPATH Index target-date funds was magnified by the inexperience of the funds’ investment manager (flexPATH), which had no established track record as an investment manager, had only managed assets for investors since June 2015 and only recently completed the launch of the flexPATH Index target-date funds in January 2016. Despite these facts, Molina placed flexPATH’s target-date funds in the plan on or about May 16, 2016.”

The complaint alleges that the decision to add the flexPATH Index target-date funds to the plan benefitted NFP and flexPATH by providing an immediate and substantial transfer of over $200 million of the plan’s assets into these “brand-new, untested target-date funds.”

“When NFP recommended the flexPATH Index target-date funds to Molina for consideration, those funds did not yet exist,” the complaint alleges. “As a result, there was no actual performance history for NFP to consider when evaluating how the flexPATH Index target-date funds performed under actual market conditions or relative to alternative target-date fund strategies available to the plan.”

The full text of the new complaint is available here.

Barnabas Health Latest to Settle ERISA Suit

A settlement has been struck in an ERISA lawsuit involving the New Jersey-based health care provider a little more than a year after a judge allowed the case to proceed past the defense’s motion to dismiss.

In April 2021, the U.S. District Court for the District of New Jersey denied the dismissal of an Employee Retirement Income Security Act lawsuit against Barnabas Health.

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Now, a little more than a year later, the parties in the lawsuit have filed a settlement agreement that would see Barnabas Health, via its fiduciary insurer, pay $1.75 million to resolve the litigation, which involves two defined contribution retirement plans offered to employees. As stipulated in the text of the agreement, one-third of this amount may be used to cover the plaintiffs’ attorney fees.

In the original complaint, the plaintiffs alleged that the plans’ fiduciaries chose high-cost investments when lower-cost alternatives were available. They also suggested that the fiduciaries selected higher-cost share classes for funds when lower-cost share classes were available, and that there were lower-cost alternative funds available that performed better over the long-term. Finally, the lawsuit alleged that the fiduciaries failed to monitor or control the plans’ recordkeeping expenses.

In their motions to dismiss the case, the Barnabas defendants argued that the plaintiffs invested in only some of the funds cited, and that they lacked standing to press claims based on the funds in which they did not invest. The court’s prior order rejecting the defense’s dismissal motion found that the participants had sufficiently alleged an injury to their own investments by virtue of the fiduciaries’ mismanagement to have standing in the case.

Beyond the settlement payment of $1.75 million, the settlement agreement also includes a requirement that the Barnabas defendants conduct a request for proposals process regarding the plans’ recordkeeping fees and services. This must be done within 18 months of the effective settlement date.

Notably, the settlement agreement emphasizes that Barnabas Health does not admit any wrongdoing or legal liability of any kind, whether legal or factual. The defendants state that they are entering into the settlement agreement only to eliminate the burden and expense of further litigation.

According to expert ERISA attorneys, the challenging economics of ERISA litigation have caused many defendants to follow the route now being taken by Barnabas, wherein they pay sizable settlement agreements while maintaining that they did not commit the alleged fiduciary breaches. When an employer faces a class action ERISA lawsuit that clears a motion to dismiss, the choice for the plan sponsors is either to continue to fight the litigation, which often becomes incredibly expensive, or to pay to settle a claim that might only involve a couple of million dollars. Attorneys also note that, as in this case, input from insurance carriers is a definite consideration in whether a case settles.

The full text of the settlement agreement is available here.

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