Compliance February 3, 2021

Participants in Terminated 403(b) Plan File ERISA Lawsuit

The plaintiffs allege the use of actively managed funds and higher-cost share classes caused them to lose millions.

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A group of 403(b) plan participants are suing their employer for allegedly keeping imprudent investments as choices in the plan and for causing them to pay excessive fees for plan investments, among other things.

According to the Employee Retirement Income Security Act (ERISA) lawsuit, “for the period beginning January 1, 2015, through the date the plan was terminated, May 31, 2019, plan participants lost approximately $4.6 million due to excessive fees and costs as a result of Columbus Regional’s breaches of fiduciary duty.”

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The lawsuit alleges that Columbus Regional Healthcare, which was acquired by Atlanta-based Piedmont Healthcare in 2018, selected and maintained actively managed funds in the 403(b) plan “in the hope of generating ‘excess returns.’” However, it says the health care system ignored the “red flags” of high expense ratios which cost participants millions of dollars. The plaintiffs say the actively managed funds underperformed and did not recoup them for high fees. The lawsuit claims a prudent fiduciary would have considered index funds as options for the plan.

The health care system is also charged with selecting high-priced share classes and not negotiating as a “large plan” for lower-priced share classes.

The lawsuit says Columbus Regional failed to prudently select, evaluate and monitor the plan’s target-date fund (TDF) suite. It says the family of TDFs managed by American Century did not have a consistent track record of outperforming the market and that the returns did not justify their costs. In addition, Columbus Regional is accused of selecting the most expensive share classes for the TDFs—Class A—when it could have selected cheaper R-6 share classes.

The lawsuit also calls out the stable value fund selected by Columbus Regional, saying it generated lower returns than “substantially identical” stable value funds offered by other investment managers.

Plaintiffs challenge the administrative expenses of the plan, saying that revenue sharing hid the true cost of the plan. They say the fees charged by the investment adviser to the plan were “grossly excessive” and that the fees charged by the plan’s recordkeeper were 1.7 to 3.1 times what a reasonable fee would have been.

Plaintiffs also say they were not provided with information they needed to make informed investment decisions. They say Columbus Regional did not disclose the excessive fees participants were paying and that it had selected higher-cost share classes for investments in the plan. “The disclosures Columbus Regional did provide to participants consisted of incomplete and vague boilerplate [information] furnished by the very same service providers that benefited from the excessive fees and kickbacks,” the complaint states.

Columbus Regional’s parent company did not respond to a request for comment.

Break from the Grind February 2, 2021

Youngest Generations Struggling the Most With Remote Work

They feel less connected and are more worried about their career success, a survey found.

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Employees younger than 30 are struggling with remote work and experiencing more stress in the wake of COVID-19 than their older counterparts, according to a meQuilibrium study of 7,000 employees.

“Remote work is hardest on young Millennials and Generation Z, because they feel less connected and [under] high pressure,” says Andrew Shatté, chief knowledge officer and co-founder, meQuilibrium.

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The study found this younger group is more at risk for burnout and low motivation than older employees, who are more established and connected to their workplace. More than one-third (34%) are more worried about their success as compared to employees older than 30, and 15% are more concerned about their jobs.

In addition, 29% reported having more difficulty with motivation, more so than their older counterparts.

“The pile-on of pressures—financial challenges, worry about job loss and [worry about] the long-term cost to their careers—has Gen Z and young Millennials feeling under water,” says Shatté. “Remote work has made them feel less connected, less informed and missing out on the mentorship that young people need.”

Shatté says mentoring is a key factor in helping young workers cope with pandemic-related challenges. “The guidance of more established employees is especially helpful to workers experiencing high distress, and mentorship will continue to be an important element in places where remote work is here to stay and as we transition into a hybrid world and back into physical workplaces,” he says.

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