Another Health Care Provider Accused of ERISA Breaches

Barnabas Health is the latest to face class action allegations filed by the law firm Capozzi Adler.

A new Employee Retirement Income Security Act (ERISA) lawsuit has been filed in the U.S. District Court for the District of New Jersey, naming as defendants Barnabas Health and various retirement plan committees and individuals alleged to be fiduciaries of the health care system’s 401(k) and 403(b) defined contribution (DC) retirement plans.

Allegations in the suit closely parrot other complaints filed in the past year against health care systems by the law firm Capozzi Adler—including an extensive recitation of basic facts about ERISA and the fiduciary duty, as well as some repeated typos. All of the suits claim, with minor variations in the particular details, that the plan sponsors being sued have failed to use their significant bargaining power to negotiate better fees for investments and/or recordkeeping services.

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“As jumbo plans, the [Barnabas] plans had substantial bargaining power regarding the fees and expenses that were charged against participants’ investments,” the new complaint states. “Defendants, however, did not try to reduce the plans’ expenses or exercise appropriate judgment to scrutinize each investment option that was offered in the plans to ensure it was prudent.”

The complaint states that one indication of the defendants’ alleged failure to prudently monitor the plans’ funds is that the plans have retained several actively managed funds despite the fact that these funds charged “grossly excessive fees compared with comparable or superior alternatives.”

“Another indication of defendants’ failure to prudently monitor the plans’ funds is that several funds during the class period were more expensive than comparable funds found in similarly sized plans,” the complaint states. “In 2018, for example, many of funds in the 401(k) plan had expense ratios well above the median expense ratios for similarly sized plans. … In several instances during the class period, defendants failed to prudently monitor the plans to determine whether the plans were invested in the lowest-cost share class available for the plans’ mutual funds. … There is no good-faith explanation for utilizing high-cost share classes when lower-cost share classes are available for the exact same investment. Defendants have no reasonable excuse for not knowing about the immediate availability of these lower-cost share classes.”

Just like the many other suits filed by Capozzi Adler, the complaint alleges that it is not prudent to select higher cost versions of the same fund even if a fiduciary believes—as it appears defendants here did—fees charged to plan participants by the “retail” class investment were the same or better as the fees charged by the “institutional” class investment, net of the “revenue sharing” paid by the funds to defray the plans’ recordkeeping costs.

The full text of the complaint is available here. Barnabas Health has not yet responded to a request for comment about the lawsuit.

Empower to Acquire Retirement Plan Clients from Fifth Third Bank

Fifth Third’s retirement plan business for its institutional clients will now focus on its core strength of providing independent fiduciary advisory services and comprehensive investment solutions.

Empower Retirement this morning announced the acquisition of a sizable portion of the retirement plans business of Fifth Third Bank.

The announcement comes less than a month after Empower revealed its acquisition of the MassMutual retirement business. Together, the MassMutual and Fifth Third acquisitions solidify Empower’s position as the second-largest U.S. retirement plan recordkeeper by assets. While it has grown significantly this year, Empower now has about a quarter of the total retirement plan assets of Fidelity, which remains by far the largest provider in this space.

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According to acquisition details released by Empower, the deal will bring about the transfer of 476 retirement plans to its recordkeeping system. The plans are populated by approximately 100,000 participants with $6.21 billion in assets. Fifth Third will continue to serve this group in a “plan-level investment advisory capacity,” driven by a “continued focus on providing independent fiduciary advisory services,” according to the firms.

According to the parties, Fifth Third’s retirement plan business for its institutional clients will now focus on its core strength of providing independent fiduciary advisory services and comprehensive investment solutions. The firms say Fifth Third will continue to “proactively deliver value added advice and solutions for its clients.”

The transaction is expected to close in the fourth quarter of this year. The terms of the agreement were not disclosed, but, at the close of the deal, Fifth Third will continue to manage $4.2 billion in plan assets.

Empower’s leaders say the ongoing relationship with Fifth Third will leverage both firms’ core expertise to the benefit of retirement plan participants and their employers. Notably, Empower currently provides recordkeeping services for Fifth Third’s retirement business through its private-label retirement plan unit, Empower Institutional. Because of this existing relationship, the Fifth Third plans will not require conversions.

Edmund F. Murphy III, Empower Retirement president and CEO, calls the deal “an exciting evolution of the existing 16-year relationship between Empower and Fifth Third.”

“With the addition of these plans to Empower’s platform, we will continue to expand our capabilities for these savers, enhance our financial wellness and advice offerings and accelerate our value creation for all our stakeholders,” Murphy says.

“The transition to Empower Retirement underscores Fifth Third’s clear commitment to creating value for our clients by keeping them at the center of all we do,” adds Kristine Garrett, executive vice president and head of wealth and asset management for Fifth Third. “It is our collective goal to ensure our clients receive the same high standard of service they expect, while gaining the technological excellence and deep product capabilities offered by Empower.”

In addition to the MassMutual deal and its other merger and acquisition (M&A) activity, Empower earlier this year acquired Personal Capital, a registered investment adviser (RIA) and wealth manager. Empower says this deal will help create the capability to offer participants a singular view of their entire financial picture, centered on the retirement planning discussion.

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