Compliance December 7, 2020

Lawsuit Filed on Behalf of Cognizant Technology 401(k) Plan Participants

The lawsuit alleges plan fiduciaries failed to ensure plan investments and fees were prudent.

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Law firm Capozzi Adler has filed a lawsuit on behalf of a group of participants in the 401(k) plan of Cognizant Technology Solutions U.S. Corporation.

The suit alleges that the company, its Board of Directors and its 401(k)-investment committee breached its fiduciary duties under the Employee Retirement Income Security Act (ERISA). Cognizant has not yet responded to a request for comment.

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The complaint says that at the end of 2017 and 2018, the plan had more than $1 billion and $1.1 billion dollars, respectively, in assets under management that qualified it as a large plan in the defined contribution (DC) plan marketplace. It alleges that the plan had substantial bargaining power regarding the fees and expenses that were charged against participants’ investments; however, the defendants did not try to reduce the plan’s expenses or exercise appropriate judgment to scrutinize each investment option that was offered in the plan to ensure it was prudent. The defendants are also accused of failing to control the plan’s recordkeeping costs.

The lawsuit specifically alleges that there were MassMutual-branded mutual funds offered in the plan for which there were rebranded separate investment accounts (SIAs) that were identical but lower cost. “Because the underlying funds are otherwise identical to the MassMutual version, but with lower fees, a prudent fiduciary would know immediately that a switch is necessary,” the complaint states.

The defendants are also accused of failing to investigate the availability of lower-cost collective investment trust (CITs) for the plan’s investment menu. For example, the lawsuit says, the plan had nine MassMutual Target Date CIT funds and had more than $560 million dollars invested in these funds—”sufficient assets under management during the class period to qualify for the lower cost American Century collective trusts with the only difference being they lacked the MassMutual branding.”

The lawsuit also alleges that many of the actively managed funds in the plan had lower-cost, better performing actively managed alternatives.

Compliance December 7, 2020

Second Case Against Cerner Dismissed Then Reopened

The parties are now discussing a potential settlement, according to the court docket.

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A federal judge dismissed a second excessive fee fiduciary breach lawsuit filed against Cerner Corporation, but that order has been vacated.

According to the court docket for the case, U.S. District Judge Eric F. Melgren of the U.S. District Court for the District of Kansas granted Cerner’s motion to dismiss, noting that the case has substantially similar parties and issues as the first case filed against the company. He said nothing warranted “disregarding the first-to-file rule.”

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Details of Melgren’s memorandum and order published on December 2 are not available. A docket entry on that same date says the parties in the case are scheduled to confer on December 8, “to discuss the status of the potential settlement of the case.”

Both cases allege that the defendants breached their Employee Retirement Income Security Act (ERISA) fiduciary duties by 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 maintaining certain funds in the plan despite the availability of identical or similar investment options with lower costs and/or better performance histories.

In the second case, the plaintiffs say the defendants continuously designated Cerner stock (i.e., an undiversified investment) as the default investment option for the employer portion of contributions instead of well-diversified options, “even though Cerner’s stock performed poorly in comparison to its benchmark, thereby imposing more risk and risk-concentration on participants—something that was in Cerner’s interests but not in the interest of the participants.”

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