Mercy Health Corp. Faces 403(b) Plan Excessive Fee Lawsuit

An Employee Retirement Income Security Act (ERISA) lawsuit has been filed against fiduciaries of Mercy Health Corp.’s 403(b) plan.

The complaint alleges that the fiduciaries breached the duties they owed to the plan and its participants by authorizing the plan to pay unreasonably high fees for recordkeeping and administration (RK&A); failing to objectively, reasonably and adequately review the plan’s investment portfolio with due care to ensure that each investment option was prudent, in terms of cost; and unreasonably maintaining investment advisers and consultants for the plan despite the known availability of similar service providers with lower costs and/or better performance histories.

The plaintiff contends that the defendants “did not engage in a prudent decision-making process and/or engaged in self-dealing, as there is no other explanation for why the plan paid these unreasonable fees for RK&A, investment management, and investment advisory and consultant services.” The plaintiff also brings prohibited transaction claims based on dealings between the defendants and the recordkeeper, investment manager, investment advisers and consultants to the plan.

The proposed class action lawsuit alleges that during the class period, the defendants failed to regularly monitor the plan’s RK&A fees paid to covered service providers, including but not limited to Voya, and failed to regularly solicit quotes and/or competitive bids from covered service providers in order to avoid paying unreasonable fees for RK&A services. According to the plaintiff, the defendants did not have a plan or process in place to ensure that the plan paid no more than a competitive reasonable fee for RK&A services.

Because the defendants failed to regularly monitor the plan’s RK&A fees paid to covered service providers, the fees were significantly higher than they would have been had the defendants engaged in this process, the complaint states. Using a graph and table, the lawsuit contends that during the year 2018, other plans of similar sizes with similar amounts of money under management as compared to the Mercy Health plan paid recordkeepers an average of approximately $536,914, or approximately $48.83 per participant. Mercy Health’s plan paid RK&A fees to Voya totaling approximately $1,294,361, or approximately $118.00 per participants.

The lawsuit also alleges that the defendants failed to ensure that the plan paid no more than a reasonable fee for expenses related to its target-date funds (TDFs) and that they did not have a plan or process in place to ensure that the plan paid no more than a reasonable fee for expenses related to its TDFs.

As with many other excessive fee lawsuits, the plaintiff in this case says the plan paid unreasonably high fees based on the share classes selected for funds in the plan. “Defendants: did not conduct an impartial and objectively reasonable review of the plan’s investments on at least a quarterly basis; did not identify cheaper, lower-cost, more prudent share classes available to the plan; and did not transfer the plan’s investments into these cheaper, lower-cost, and/or institutional shares, all to the substantial detriment of plaintiff and the plan’s participants,” the complaint states. It contends that because the defendants failed to act in the best interests of participants by engaging in an objectively reasonable investigation process when selecting its investments, the defendants caused unreasonable and unnecessary losses to participants in the amount of approximately $19,460,841.

The lawsuit also specifically calls out what it says are excessive fees associated with the plan’s stable value funds.

According to the complaint, during the class period, the defendants paid service providers in excess of $4,500,000 for fees and commissions. It says the services “provided by Regulus Advisors do not warrant the fees charged because there are other equally or superior services available to plan participants, including plaintiff, for free or at significantly lower rates than those charged by Regulus Advisors.”

Noting that Voya and Regent are parties in interest as they provide services to the plan, the complaint states that the defendants “knew or should have known that Regal and Voya, as dual-registered RIAs, had an inherent conflict of interest and/or interests materially adverse to the best interests of plan participants.” It says the defendants caused the plan to engage in transactions in which goods and/or services were furnished, either directly or indirectly, between the plan and parties in interest, including, but not limited to Regal and Voya. According to the complaint, the defendants engaged in prohibited transactions that do not qualify for a statutory exemption as reasonable compensation for plan service providers.

Mercy Health has not yet responded to a request for comment.