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$10 Billion 403(b) Smacked with Excessive Fee Suit


Capozzi Adler PC[i] has found another target for excessive fee claims—and this one is a $10 billion 403(b) plan.

This time the defendants are the fiduciaries (and those who appointed them) of the Consolidated 403(b) Program of Mass General Brigham and Member Organizations—a plan that “at all times during the Class Period, the Plan had at least $6.4 billion dollars in assets under management”—in fact, the suit notes that at the Plan’s fiscal year end in 2020 and 2019, the Plan had over $10.2 billion and $9.2 billion, respectively. 

As perhaps befits a plan of this size there are multiple named participant-plaintiffs (Mark Norton, Dashka Louis, Caroline Mitchell, Nancy Bartlett and Azilda Cordahi), though—and as is often stipulated in these cases, these plaintiffs “…did not have and do not have actual knowledge of the specifics of Defendants’ decision-making process with respect to the Plan, including Defendants’ processes (and execution of such) for selecting, monitoring, and removing Plan investments or monitoring recordkeeping and administration costs, because this information is solely within the possession of Defendants prior to discovery.” 

Though the suit (Norton et al. v. Mass General Brigham Inc. et al., case number 1:22-cv-10045, in U.S. District Court for the District of Massachusetts) states that, “in an attempt to discover the details of the Plan’s mismanagement, on May 3, 2021, Plaintiffs wrote to Mass General requesting, inter alia, meeting minutes from the Committee. By correspondence dated May 13, 2021, Mass General did not acknowledge whether it kept Committee meeting minutes and, more importantly, did not provide any minutes in response to Plaintiffs’ request.”

‘Reasonable Inferences’

Not that that slowed the allegations. “For purposes of this Complaint, Plaintiffs have drawn reasonable inferences regarding these processes based upon several factors”—apparently including that “…defendants did not adhere to fiduciary best practices to control Plan costs when looking at certain aspects of the Plan’s administration such as monitoring investment management fees for the Plan’s investments, resulting in several funds during the Class Period being more expensive than comparable funds found in similarly sized plans (conservatively, plans having over 1 billion dollars in assets.”

The plaintiffs state that “defendants could not have engaged in a prudent process as it relates to evaluating investment management fees,” continuing to explain that “seven of the funds that have remained in the Plan throughout the Class Period have an expense ratio that’s 10-basis points higher than required by the fund provider,” a result the plaintiffs attribute to revenue sharing which they claim “…when left unchecked it can have devastating effects on the retirement savings of plan participants.” The suit states that these seven funds were offered by TIAA-CREF and have over $1.3 billion in assets under management in 2020. 

Before going on to note that while “It’s not clear if the additional fees charged above were used to offset some of the already high administrative and recordkeeping costs but even if they had been, the Defendants could not have engaged in a prudent process in selecting the above funds.” 

They then go on to state that “Defendants’ failure to obtain reasonably-priced investments during the Class Period is circumstantial evidence of their imprudent process to review and control the Plan’s costs and is indicative of Defendants’ breaches of their fiduciary duties, relating to their overall decision-making, which resulted in the payment of excessive recordkeeping and administration fees—the crux of this lawsuit—that wasted the assets of the Plan and the assets of participants because of unnecessary costs.”

Recordkeeping Fees

Turning to the issue of recordkeeping fees, the suit claims that “because the Plan paid yearly amounts in recordkeeping fees that were well above industry standards each year over the Class Period, there is little to suggest that Defendants conducted an appropriate RFP at reasonable intervals—or certainly at any time prior to 2016 through the present—to determine whether the Plan could obtain better recordkeeping and administrative fee pricing from other service providers given that the market for recordkeeping is highly competitive, with many vendors equally capable of providing a high-level service.” The suit alleges that the plan paid between $76 and $54 per participant during the class period, and compares that (unfavorably) to the fees allegedly paid by plans that were of comparable size. And then, if that assertion was not compelling enough, they cite “another source”—case law, which they claim establishes that the ‘reasonable rates’ for jumbo plans is around $35/participant “with costs coming down every day.”

What This Means

On the surface this looks to be another cookie-cutter (re)recitation of claims and assertions of what constitutes “reasonable,” alongside inferences that those allegations amount to something of a smoking gun—circumstantial evidence that malfeasance (must have) occurred.

We’ll see if the court is willing to permit further discovery based on those allegations—or if they’ll grant the inevitable motion to dismiss for failure to state a claim.

Stay tuned.

[i]Capozzi Adler has been quite active (to say the least) in this type litigation over the past two years, including suits involving the $1.5 billion Baptist Health South Florida, Inc. 403(b) Employee Retirement Plan, the $1.2 billion 401(k) plan of the American Red Cross, the $700 million Pharmaceutical Product Development, LLC Retirement Savings Plan, the $2 billion plan of Cerner Corp and more recently the $6 billion 401(k) plan of KPMG. (even) more recently they have managed to quickly turn litigation against a couple of smaller firms to quick settlements.