Think the last multibillion-dollar 401(k) plan had been sued? Guess again.
The latest to find itself served with a suit is health technology firm Cerner Corp., whose $2 billion plan has been accused of the assortment of fiduciary miscues typical of this case genre. Specifically, four participant-plaintiffs are seeking class action status in the Western District of Missouri for “(1) failing to objectively and adequately review the Plan’s investment portfolio with due care to ensure that each investment option was prudent, in terms of cost; and (2) maintaining certain funds in the Plan despite the availability of identical or similar investment options with lower costs and/or better performance histories.”
Along those lines, the plan fiduciaries are also alleged to have “failed to utilize the lowest cost share class for many of the mutual funds within the Plan, and failed to consider collective trusts, commingled accounts, or separate accounts as alternatives to the mutual funds in the Plan, despite their lower fees.”
‘Grossly Excessive’
As other suits have alleged, the fiduciaries here (Freck v. Cerner Corp., W.D. Mo., No. 4:20-cv-00043, complaint filed 1/21/20) are said to have allowed the plan to keep “several actively-managed funds as Plan investment options despite the fact that these funds charged grossly excessive fees compared with comparable or superior alternatives, and despite ample evidence available to a reasonable fiduciary that these funds had become imprudent due to their high costs” (though it did offer two index funds from 2013-2014, and added another from 2015 to 2018).
The plaintiffs here claim that (using 2017 as an example) “at least 16 out of 22 funds in the Plan – a staggering 73% of funds, were much more expensive than comparable funds found in similarly-sized plans (plans having over a billion dollars in assets),” and that the expense ratios for funds in the plan in some cases were up to 72% above the median for similar funds in that category. (The fund in question was the Fidelity International Small Cap Opp fund, in case you were wondering.)
All of this meant that (according to the suit), “…the Plan lost millions of dollars in offering investment options that had similar or identical characteristics to other lower-priced investment options.”
‘Astronomical’
Of course, it wasn’t just about investment fees. The plaintiffs alleged – as have other plaintiffs in comparable litigation – that the recordkeeping fees for the 23,900-participant plan were excessive as well. Indeed, they say that the total amount of recordkeeping fees on a per participant basis was “astronomical.” They allege a failure to prudently monitor and review those services, noting that the plan’s recordkeeper has been Fidelity Management Trust Company “since at least 2007 (with no change) and there is no evidence Defendants have undertaken an RFP since 2007 in order to compare Fidelity’s costs with those of others in the marketplace.” The plaintiffs assert that for a $2 billion plan, “normal” recordkeeping fees “would have been less than $50 per participant at the beginning of the Class Period and lower in ensuing years as a reflection of the general trend of decreasing recordkeeping fees.”
In addition, the plaintiffs allege a breaches of fiduciary duty for:
- “Failing to monitor and evaluate the performance of the Committee Defendants or have a system in place for doing so, standing idly by as the Plan suffered significant losses as a result of the Committee Defendants’ imprudent actions and omissions;
- “Failing to monitor the processes by which Plan investments were evaluated, their failure to investigate the availability of lower-cost share classes, and their failure to investigate the availability of lower-cost separate account and collective trust vehicles; and
- “Failing to remove Committee members whose performance was inadequate in that they continued to maintain imprudent, excessively costly, and poorly performing investments within the Plan, and caused the Plan to pay excessive recordkeeping fees, all to the detriment of the Plan and Plan participants’ retirement savings.”
Capozzi Adler PC and Welder Blunt Welder & Associates LLC represent the proposed plaintiffs’ class.
