International Clinical Laboratory Company Faces 401(k) Lawsuit

An Employee Retirement Income Security Act lawsuit has been brought against clinical laboratory company Quest Diagnostics in U.S. District Court for the District of New Jersey in the case William Morales V. Quest Diagnostics Incorporated.

The Quest Diagnostics 401(k) profit sharing plan is the target of a class action complaint alleging the retirement plan balances of workers contributing to the company’s 401(k) profit sharing retirement plan were depleted by excessive fees charged for in-plan investments, the complaint states.

Attorneys for the plaintiffs argue Quest plan fiduciaries failed to disclose the fees paid to third-party providers by plan participants, did not employ a rigorous process to control in-plan fund investment fees and did not ensure workers deferring from their salary for retirement would pay reasonable fees for core investments in the plan, according to the filing.

“Defendant failed to prudently monitor the plan to determine whether the plan was invested in the lowest-cost share class available for the plan’s mutual funds, which are identical to the mutual funds in the plan in every way except for their lower cost,” the complaint states. “[M]ore than 60% of the plan’s investments are invested in the Fidelity Freedom Fund K Class Target Date funds which are, on average at least 55 basis higher than their less expensive Fidelity Freedom Index Fund Institutional Premium Class counterparts.”

The plaintiffs’ attorneys specifically argued that Quest failed to take advantage of cheaper share classes in at least 16 core investments on the plan’s menu, which comprised the plan’s designated default investment options, and that fiduciaries charged retained a suite of Fidelity active management target-date funds in the plan instead of better performing and less expensive passively managed funds.

The complaint argues that plan fiduciaries’ breach of duty caused the plan and the workers contributing to suffer millions of dollars in losses from excessive investment costs and lower net investment returns.

“There is no good-faith explanation for utilizing a high-cost share class when a lower-cost share class is available for the exact same investment,” the complaint states. “The plan did not receive any additional services nor benefits based on its selection of more expensive share classes; the only consequence was higher costs for plan participants.”

Retirement account statements Quest provided to plan participants did not—contrary to Department of Labor regulations, passed in 2021—show the fees participants paid, and neither did the plan’s annual Form 5500 DOL reports, according to the complaint.

According to a table in the complaint, while the Quest Diagnostics plan included the higher-fee Fidelity Freedom 2065 Fund Class K shares at a cost of 65 basis points, the Fidelity Freedom Index 2065 Fund Institutional Premium Class was a cheaper available option, at 8 bps.

The complaint states the “defendant’s failure to disclose the options for the lowest-cost share class available caused plan participants to pay excessive fees when they chose the higher-cost share class for the same funds, which has and will continue to diminish the value of their individual 401(k) accounts.”

Additionally, plan fiduciaries failed to review plan investments, which “would have identified the cheaper share classes available and transferred the plan’s investments in the above-referenced funds into institutional shares at the earliest opportunity,” according to the complaint.

“Had [the] defendant complied with its fiduciary obligations, the plan would not have suffered these losses, and plan participants would have had more money available to them for their retirement,” it states.

The plaintiffs’ attorneys argued that plan fiduciaries operated the plan improperly and not in the best interests of the participants, as required under ERISA by their failure to leverage the plan’s “tremendous” bargaining power to negotiate lower investment fees, according to the complaint.

The Quest Diagnostics 401(k) profit sharing plan comprised $5,665,588,484 in assets for 45,737 participants with account balances at year-end 2021, the filing shows.

Lead plaintiff William Morales is represented in the lawsuit by counsel from Tampa, Florida-based law firms Morgan & Morgan and Wenzel Fenton Cabassa and Scottsdale, Arizona-based McKay Law. Morales is a lab professional at Quest Diagnostics—employed as a cytotechnologist since 2002, responsible for screening patients for cancer—who is currently enrolled in the plan, states the complaint.

McKay Law, Morgan & Morgan and Wenzel Fenton Cabassa have filed many retirement plan lawsuits, including two complaints against nationwide freight transporters in late 2022.

The attorneys for the plaintiff proposed for the class period to apply to all participants in or beneficiaries of the Quest Savings Plan between December 22, 2016, and the present, according to the court filing.

It is unclear if Quest Diagnostics has secured counsel. Quest operates in the U.S., Brazil, India, Ireland and Mexico and is headquartered in Secaucus, New Jersey. A Quest Diagnostics spokesperson declined to comment on the litigation.

U.S. Secretary of Labor Marty Walsh brought a civil lawsuit before the United States District Court for the Southern District of Texas, also under ERISA, that alleges five counts of fiduciary breach against a profit sharing plan in another retirement lawsuit, Walsh v. Poston et al, earlier this month.