Essentia Health Loses Round in Lawsuit Over Retirement Plan Fees

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Carmen Castro-Pagan

Essentia Health couldn’t convince a federal magistrate judge to dismiss a lawsuit accusing it of violating federal law by allowing excessive record-keeping fees for its workers’ retirement plans ( Morin v. Essentia Health , D. Minn., No. 0:16-cv-04397, report and recommendation 9/14/17 ).

The allegations that Essentia fiduciaries breached their duties by allowing the plans to pay higher than reasonable market fees for record-keeping services and that comparable or superior services were available at lower cost are sufficient to survive dismissal, Magistrate Judge Leo I. Brisbois said Sept. 14. In his report, Brisbois also recommended not dismissing the participants’ claim that Essentia failed to monitor the plans’ fiduciaries and ensure that they were satisfying their duties.

If the recommendation is adopted, the Minnesota health-care nonprofit that also serves North Dakota, Wisconsin, and Idaho will have to defend a lawsuit that seeks class treatment for thousands of participants in Essentia’s retirement plans. The plans—a 401(k) and a 403(b)—had more than 19,000 participants and over $1 billion in assets combined at the end of 2014, according to court documents.

Employee Retirement Income Security Act lawsuits over excessive fees in employer-sponsored retirement plans haven’t slowed down in the past year. Recent challenges against large employers have been filed against Wal-Mart Stores Inc., Delta Air Lines, and Starwood Hotels. Private universities have also been targeted, with lawsuits against Yale, Vanderbilt, Johns Hopkins, Cornell, Princeton, and others pending. Smaller companies haven’t been spared either—new lawsuits have targeted Nationwide Life Insurance Co. and Voya Financial Inc. over the fees they charge to small retirement plans.

The claims of fiduciary breach were based on the alleged excessive fees charged to the plans since at least 2010. At that time, BMO Harris received $142 per participant in addition to revenue sharing while alternate record-keeping services were allegedly available for $60-$80 per participant. The plans later changed providers to Transamerica, which collected $94 per participant in 2014 and $88 per participant in 2015, while comparable services were allegedly available for between $35-$45 per participant.

Brisbois rejected Essentia’s argument that the fiduciary breach claim should fail because the participants made an “apples to oranges” comparison between the fees the plans were charged and other lower cost available alternatives.

Nichols Kaster PLLP and Madia Law LLC represent the participants. Dorsey & Whitney LLP represents Essentia.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at ccastro-pagan@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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