Hospital Target in 403b Lawsuit Starts off the Year
Another day, another lawsuit. Plan participants of Eseentia Health in Minnesota filed a class action lawsuit against the 403b plan sponsor claiming that the organization paid excessive fees to their record keepers. Experts are predicting an increasing number of lawsuits, especially against 403b plans which many consider low hanging fruit.
Along with the failure to negotiate reasonable fees, plaintiffs in the Essentia plan claim that the use of multiple record keepers unnecessarily increased costs to participants. Using multiple record keepers is common for many not-for-profit plans. It is rampant in K-12 plans where fees tend to be significantly higher for participants.
In another case, a judge dismissed a case against Prudential for receiving revenue sharing from its proprietary asset allocation investment because there was no evidence that the record keeper was acting as a fiduciary. Claims against the plan’s advisor, CAPTRUST, were also dismissed.
So what lies ahead? Certainly courts willingness to accept class action lawsuits will make it more attractive for law firms; 403b plans seem squarely in the cross hairs with universities and hospitals initially targeted. The DOL conflict of interest rule could also increase litigation with more parties acting as fiduciaries and being named as co-defendants.
Another issue that could give rise to litigation is breach of data security. With more and more information accessible online, the potential for hacking increases with no federal protection for retirement plan data like with healthcare plans.
Smaller plans have mostly escaped the rash of 401k and 403b lawsuits with one still pending in Ohio against CheckSmart and the other in Minnesota against a $9 million plan withdrawn. But local law firms smelling blood could copy the complaints filed against larger companies hoping that smaller companies would rather settle than incur the cost of litigation even if they win. Smaller plan sponsors should consider fiduciary liability insurance which is still very cost efficient and protects not only the company but the individual employees serving as fiduciaries.
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