Hospital 403(b) Plan Faces Lawsuit Over Investment Share Class Selection

The Norton Healthcare Defined Contribution Retirement Plan and its fiduciaries have been charged in a new lawsuit of breaching their fiduciaries duties under the Employee Retirement Income Security Act (ERISA) by selecting more expensive share classes of investments than were available to the plan.

According to the complaint, the Norton plan holds approximately $700 million in assets and is large enough to meet initial investments minimums in lower-cost institutional share classes of investments. The plaintiffs claim that the defendants repeatedly failed over the class period from 2012 to 2016 to monitor the share classes of mutual fund investments and to substitute less expensive share classes of mutual funds for more expensive ones. “As a result, Defendants wasted the assets of the Plan participants, who were forced to pay higher fees than were necessary,” the complaint says.

One example provided in the complaint is the Principal Income Equity R-5 fund. In 2012 Norton invested $33,558,344 in the fund, and its total operating expenses charged to the plan for 2012 amounted to .77% (77 basis points) of total plan investments. According to the complaint, in 2012 Principal also offered an identical Principal Equity Institutional Class Fund which carried a total operating expense of .52% (52 basis points). Plaintiffs’ contend this basis point difference means plan participants unnecessarily overpaid $83,895.86 in fees for the fund.

To remedy the alleged fiduciary breaches, the plaintiffs, on behalf of a class of participants and beneficiaries to the plan, seek to enforce the defendants’ liability to make good to the plan all losses resulting from each breach of fiduciary duty and to restore to the plan any profits made through the defendants’ misuse of plan assets. They also seek other equitable or remedial relief for the plan as the court may deem appropriate.