Retirement Plan Lawsuit Targets Texas Health Care System

Retirement plan participants of the Memorial Hermann Health System 401(k) and 403(b) plans filed a lawsuit against the Houston-based health care system, alleging fiduciary breaches of the duty of prudence and the failure to monitor other fiduciaries.  

Plaintiffs have alleged the plan fiduciaries improperly allowed Fidelity Investments, serving as the plan’s recordkeeper, to charge unreasonably high recordkeeping fees and claimed fiduciaries failed to review the plan’s investment portfolio—to ensure each option was prudent—regarding risk and performance.

The lawsuit was brought in U.S. District Court for the Southern District of Texas under the Employee Retirement Income Security Act. The plaintiffs sued the Memorial Hermann Health System, Board of Directors and investment committee. The lawsuit is Jones et al. v. Memorial Health System et al. District Judge Alfred H. Bennett is hearing the case.

“The plans had substantial bargaining power regarding the fees and expenses that were charged against participants’ investments,” plaintiff’s attorneys wrote in the complaint. “Defendants, however, did not exercise appropriate judgment in scrutinizing each investment option, initially and on an ongoing basis, which was offered in the plans to ensure they were prudent.”

The Memorial Health System Employees’ Retirement Savings Plan held $2.2 billion in retirement assets for 29,238 plan participants, according to the most recent Form 5500 filed to the Department of Labor, for the 2021 plan year. The system employs more than 32,000 individuals, including 6,700 physicians, and maintains 265 care delivery sites, including 17 hospitals.

The retirement plan fiduciaries had “the leverage to negotiate favorable rates,” for recordkeeping below $40 per participant, which is the fee charged by Fidelity to the plan, attorneys added.

Comparatively, similar-size plans charge lower per-participant fees, ranging between $10 per participant to $28, plaintiff’s attorneys argue, in the complaint.

The Memorial Hermann participant plaintiffs also alleged that the plan’s investment offerings included JP Morgan SmartRetirement R6 Series target-date fund as the plan’s sole TDF option, although the fund underperformed.

The complaint seeks to certify the litigation as a class action lawsuit. Attorneys for the plaintiffs requested the court sanction a class period of any times between June 4, 2018, through the date of judgement.

Plaintiffs are seeking return of any losses to the plan due to imprudent investments.

Attorney Kell Ascher Simon and an attorney with the law firm Capozzi Adler PC represent the plaintiffs. The complaint did not show attorneys for the defendants.

Representatives of attorneys for the plaintiff did not respond to a request for comment nor did representatives for the Memorial Hermann Health System.