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Capozzi Adler Files a Big 403(b) Suit


One of the most active ERISA litigation firms has now turned its attention to a mammoth 403(b) plan.

The suit (Garnick v. Wake Forest Univ. Baptist Med. Ctr., M.D.N.C., No. 1:21-cv-00454, complaint 6/4/21) was filed in the in the U.S. District Court for the Middle District of North Carolina by participant-plaintiffs Shelley R. Garnick, Tanajah Clark and Zoe R. Jones against the fiduciaries of the $2.3 billion Wake Forest Baptist Medical Center 403(b) Retirement Savings Plan (the Medical Center, the Board of Directors of Wake Forest University Baptist Medical Center, and the Retirement Benefit Committee of Wake Forest University Baptist Medical Center) for breaches of their fiduciary duties to the 19,000 participants of that plan. 

Specifically, the plaintiffs claim they fell short of their obligations under ERISA by:

  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; 
  2. maintaining certain funds in the Plan despite the availability of identical or similar investment options with lower costs and/or better performance histories; and 
  3. failing to control the Plan’s administrative and recordkeeping costs—all of which, they allege, were “contrary to actions of a reasonable fiduciary and cost the Plan and its participants millions of dollars.”

As have other suits—this one filed on behalf of the plaintiffs by the law firms Capozzi Adler PC[i] and Matheson & Associates—this one claims that “Wake Forest and its clients also benefit in other ways from the Plan’s matching program,” specifically citing the benefits in attracting new employees and retaining existing ones, and that “given the size of the Plan, Wake Forest likely enjoyed a significant tax and cost savings from offering a match.

“In theory, the Committee responsibilities include selection and monitoring of the funds available for investment in the Plan,” the plaintiffs argue. “But in practice, as alleged below, that is not what happened.”

Comparable Comparisons

The suit claims that in 2019, the funds available to participants were “more expensive than comparable mutual funds found in similarly sized plans”—more specifically that the expense ratios for these funds were up to 280% (in the case the BlackRock Inflation Protected Bond Inv A) and up to 273% (in the case of Loomis Sayles Strategic Income A) above the (ICI) median expense ratios in the same category.”

And while it’s a crude comparison, the suit also alleges that “the high cost of the Plan’s funds is similarly egregious when comparing the Plan’s funds to the average fees of funds in similarly-sized plans.” Indeed the plaintiffs claim that “26 of the mutual funds in the Plan in 2019 were not in the lowest share class,” and that “the total assets under management for these funds was more than 939 million dollars thus easily qualifying them for lower share classes.”

In addition, the plaintiffs claim that from 2015 to 2017 the Plan invested in higher cost share classes of the TIAA Lifecycle target date funds, and that by 2019, these 11 target date funds, ranging from 2010 to 2060 at five year intervals, housed over 136 million dollars in assets—though the suit acknowledges that these funds were moved to the institutional share class in 2018, “this change was too little too late as the damages to participants in lost savings had already been baked in.”

Moreover, they claim that “There is little to suggest that Defendants conducted a RFP at reasonable intervals—or certainly at any time prior to 2015 through the present—to determine whether the Plan could obtain better recordkeeping and administrative fee pricing from other service providers.” 

Participant Fees

The suit claims (citing Form 5500 data) that the plan was paying over $110 per participant in administrative and recordkeeping costs in 2019, while in 2015 and 2016, “the per participant costs were even higher, being more than $141 per participant and $155 per participant, respectively.” Those findings are contrasted with two sources that have been invoked in previous litigation; a survey by NEPC (that “found that the majority of plans with over 15,000 participants paid, on average, slightly over $40 per participant in recordkeeping, trust and custody fees,” and in which “no plan with over 15,000 participants paid more than $61”), and a stipulation by Fidelity in a lawsuit regarding its own participants where it said that “a Plan with tens of thousands of participants and over a billion dollars in assets could command recordkeeping fees as low as $14-21.” The plaintiffs also cited the plan’s “dismal ranking among peers” according to ICI/Brightscope, one that claims “based on the Plan’s rank of 43, ICI/BrightScope determined that the average participant would have to work an additional 25 years and will lose $242,155 in savings as compared to the top rated plan in the peer group.” 

And as a final point of reference, the suit cites an ICI Study where the median total plan cost for plans over 1 billion is 0.22% of total assets in a plan, while it claims the total plan costs during the Class Period here ranged from a high of 0.60% in 2015 to a low of 0.43% in 2018, and were 0.52% in 2019. “There’s little question the plan was paying at least 100% more in total plan costs than its peers,” the plaintiffs state. “These excessive costs should have been addressed by the Defendants during the Class Period, but, again, this is something the Defendants failed to do to the great detriment of plan participants.”

Monitoring Failures? 

However, the suit isn’t just challenging the actions (or lack thereof) of the plan fiduciaries—it also charges what they term the “Monitoring Defendants” (the Board Defendants and Wake Forest) that they said “had the authority and obligation to monitor the Committee and was aware that the Committee had critical responsibilities as a fiduciary of the Plan.” The suit claims that they breached their fiduciary monitoring duties by, among other things:

  1. failing to monitor and evaluate the performance of the Committee or have a system in place for doing so, standing idly by as the Plan suffered significant losses as a result of the Committee’s imprudent actions and omissions;
  2. failing to monitor the processes by which the Plan’s investments were evaluated and the Committee’s failure to investigate the availability of identical lower-cost funds; and
  3. failing to remove the Committee as a fiduciary whose performance was inadequate in that it 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 the retirement savings of the Plan’s participants.

And as a consequence “of the foregoing breaches of the duty to monitor, the Plan suffered millions of dollars of losses,” the suit claims. They conclude that “had Monitoring Defendants complied with their fiduciary obligations, the Plan would not have suffered these losses, and participants of the Plan would have had more money available to them for their retirement.”

In short, the claims are familiar, as is the plaintiffs’ representation. How the court will view these claims remains to be seen.

NOTE: In litigation there are always (at least) two sides to every story. However factual it may turn out to be, the initial lawsuit in any action is only one side, and one generally crafted toward a particular result. In our coverage you’ll see descriptions of events qualified with statements such as “the suit says,” or “the plaintiffs allege”—and qualifiers should serve as a reminder of that reality.

[i] Capozzi Adler PC has been one of the more active litigants of late. It had a busy 2020, having filed suit against LinkedInUniversal Health Services, Inc., and before that Aegis Media Americas well as the $2 billion health technology firm Cerner Corp., as well as Pharmaceutical Product Development, LLC Retirement Savings PlanGerken v. ManTech Int’l Corp—and the appeal of losses at the district court in a case involving Salesforce. In May 2021, they also filed suit against the $5.3 billion Humana Retirement Savings Plan.