A case recently filed in Minnesota took a unique approach to accusing a plan sponsor of charging participants excessive fees. Essentia Health and its subsidiary maintained two plans. One retirement plan established in 1965. The second was a 403(b) plan established in 2009. The original plan consisted of approximately 16,848 participants and $982 million in assets and was recordkept by BMO Harris. The 403(b) plan consisted of $103 million in assets and was recordkept by Lincoln Financial.
The complaint alleged the plan sponsor breached its duties as a fiduciary by not taking its plans to market in a consolidated manner in such a way as to leverage the combined assets and participant numbers of both plans to negotiate the lowest possible fee for participants in both plans via the utilization of a single record keeper. It is not uncommon for a plan sponsor to have multiple plans, particularly where the plan sponsor is a hospital and/or maintains a plan for a subsidiary. Keeping multiple plans with a single record keeper may achieve a lower fee from a recordkeeper, but the evaluation does not end with moving all plans to a single recordkeeper. For example, one plan may need more services than the other, which could cause the plan receiving fewer services to end up subsidizing the other plan. The claims in this suit represent the fact that lawsuits against plan sponsors and fiduciaries are becoming increasingly subjective and less objective. It is not enough to find the lowest fee. Ongoing evaluation of all aspects of the plan is required.
Allegations in Morin further stated that the plan sponsor failed to review and properly disclose record keeping fees in that revenue sharing received was not disclosed to participants. Revenue sharing is increasingly disfavored throughout the industry due to the fact it often results in inequitable payment of plan expenses across participants depending upon investment options selected by individual participants. In many cases, certain participants may end up subsidizing plan expenses due to the investments they select – investments with versus without revenue sharing. It is becoming more common to see plan fiduciaries eliminate revenue sharing where possible and, where not possible, to credit revenue sharing back to participants and charge plan expenses based on a pro-rata and/or per-participant basis.
At a high level, the important takeaway here is that successful retirement plan management is multi-faceted and difficult to administer as a plan fiduciary. Fortunately, when the complexity of managing your retirement plan becomes too great, the Rules allow you to seek outside advice. If you have any questions on managing your retirement plan or helping to protect yourself as a plan fiduciary, please contact our ERISA team at (417)889-4918.