University of Vermont Medical Center Plan Sued for ERISA Breaches

A class action complaint was filed in U.S. District Court for the District of Vermont this week against fiduciaries of the University of Vermont Medical Center 403(b) plan. 

UVM Medical Center employee Tyler Baker alleges two counts of fiduciary misconduct—breach of the fiduciary duty of prudence and failure to monitor fiduciaries—under the Employee Retirement Income Security Act.  

The plan’s recordkeeper and third-party administrator is Fidelity Workplace Services LLC. Fidelity was also one of the companies that managed plan investments, according to the complaint.

The plaintiff claims the retirement plan fiduciaries are liable for failing to disclose the amounts of indirect compensation Fidelity received for recordkeeping and administrative services, causing the plan to pay excessive recordkeeping fees, according to the complaint.

“Defendants, who were fiduciaries of the Plan, breached their duties by failing to: (1) calculate the amount the Plan was paying for recordkeeping through revenue sharing, (2) determine whether the recordkeeper’s pricing was competitive, or (3) adequately leverage the Plan’s size to reduce fees, among other things.”

Baker enrolled in the plan prior to September 30, 2016, before the opening of the purported class period, the complaint states. 

Plaintiffs’ Court Requests

The complaint asks the court to certify a class period as applying to all persons, except defendants and their immediate family members, who were participants in or beneficiaries of the plan between May 17, 2017 and the date of judgment. 

Additionally, the plaintiffs seek monetary relief; a declaration that each of defendants has breached their fiduciary duties; and an order for defendants to restore all losses to the plan that resulted from the defendants’ breaches of their fiduciary duties and other losses, the filing states.  

A spokesperson for the University of Vermont Medical Center denied the allegations in an email.

“The University of Vermont Health Network is committed to supporting our people, who are integral to our mission of improving the health of the communities we serve, with competitive pay and benefits,” wrote the spokesperson. “We are confident that our retirement plan has been managed in the best interests of our employees and other plan participants and beneficiaries, and always in compliance with federal law. While we have not been served with a lawsuit at this time, we will review any allegations we may receive and will demonstrate that our retirement plan has been prudently managed.”

Excessive Recordkeeping Fees Claim

The  plan charges a combined recordkeeping and administrative fee of $108 per participant per year for all accounts with assets of $10,000 or more, according to the complaint.

The plaintiffs’ complaint argues the plan fees are “unreasonable” and alleges that plan fiduciaries failed to administer the plan in a prudent manner. Comparable plans of similar size plans charge participants lower fees, attorneys for the plaintiffs argue, writing that reasonable rates “for large plans typically average around $35 per participant.”

“Numerous courts have upheld claims against fiduciaries of similar university 403(b) plans that a per-participant recordkeeping fee should be no more than $35 annually, ” the complaint states.

As of December 31, 2021—the most recently reported financial data—the plan held $1.76 billion in retirement assets for 12,387 participants with account balances, according to the filing.  

A plan this large, qualifying as mega-sized, possessed “substantial bargaining power regarding the fees and expenses that were charged against participants’ investments,” the complaint states.

ERISA Fee Disclosure Violation

The UVM Medical Center plan uses revenue sharing, compensating Fidelity for recordkeeping and plan administration services, the complaint shows.

“In this case, using revenue sharing to pay for recordkeeping burdened the plan’s participants with excessive, above-market recordkeeping and administrative fees,” attorneys wrote in the complaint.

While revenue sharing for retirement plans is not disallowed, under the Department of Labor’s 2012 rules of fee disclosure, ERISA rules enumerate “specific disclosure obligations for plan service providers,” according to a fact sheet detailing the final regulation under ERISA Section 408(b)(2).

Revenue-sharing payments are made by investments within the plan, typically mutual funds, to the plan’s recordkeeper or to the plan directly, to compensate for recordkeeping and trustee services that the mutual fund company otherwise would have to provide, the filing explains.

The disclosed compensation paid to Fidelity by the plan “did not include undisclosed indirect compensation Fidelity received from revenue sharing payments,” the complaint states. “Nor did the amounts disclosed in the Participant Fee Disclosures include compensation Fidelity obtained through [an investment brokerage window] BrokerageLink or float income, among other revenue streams.”

Although the plan revealed per participant and combined fees, requiring the plan to disclose additional compensation to Fidelity is critical for greater transparency and adherence to the rules, the plaintiffs’ attorneys argue.  

“There is nothing per se imprudent about this arrangement,” states the complaint. “The Department of Labor has expressly approved of this type of arrangement but requires fiduciaries (like Defendants) to negotiate, monitor, and factor into a recordkeeper’s compensation the earnings that a recordkeeper makes on the float.”

Float income is earned by the service provider or recordkeeper when participants contribute to or withdraw funds from a defined contribution plan investment option. The university plan agreed to terms with Fidelity that when participants deposit or withdraw money from their individual accounts, the money will first pass through a Fidelity clearing account, according to the complaint.

The defendants agreed Fidelity could, “as part of its compensation for service provided to the Plan, keep all interest or investment returns earned on Plan participant money while the money is in Fidelity’s clearing account,” the complaint states. “This is another form of indirect compensation that Fidelity receives as the recordkeeper for the Plan.”

The Court Record

Named lawsuit defendants in Tyler Baker et al. v. University of Vermont Medical Center Inc. et al. include the University of Vermont Medical Center Inc.; the Board of Trustees of the University of Vermont Medical Center; the DC Fiduciary Investment Committee; and 45 unnamed individuals. 

The plaintiffs are represented by Russell Barr of the Barr Law Group, based in Stowe, Vermont; the law offices of Edelson Lechtzin LLP, based in Newtown, Pennsylvania; and McKay Law LLC, based in Scottsdale, Arizona. The complaint did not include counsel for defendants.