On February 9, 2023, the Honorable Jennifer L. Thurston of the United States District Court for the Eastern District of California determined that class action claims alleging breaches of fiduciary duties under the Employee Retirement Income Security Act (“ERISA”) survived the motion to dismiss filed by Sutter Health and the Retirement Benefits Investment Committee of Sutter Health (together, “Defendants”).
ERISA is a federal statute that protects workers by establishing standards, known as fiduciary duties, to ensure that investments offered to employees participating in defined contribution retirement plans are prudently and loyally selected and monitored.
Sutter Health is the plan sponsor of the Sutter Health 403(b) Savings Plan (the “Plan”). As of December 31, 2018, the Plan had 73,408 participants and assets totaling $3.7 billion, placing it in the top 0.1% of all defined contribution retirement plans by size. The Plan’s large size gives it enhanced bargaining power and leverage to demand lower plan administration fees.
Plaintiffs, Christina Bonicarlo, Nicole Garcia, Ronald Hudson, Adam Blackburn, Robert L. Hackett, Tabitha Hoglund, and Stephanie Chadwick (collectively, “Plaintiffs”) allege that Defendants breached their fiduciary duties of prudence and loyalty under ERISA by retaining underperforming funds with excessive fees, instead of offering less expensive, readily available prudent alternative investments. Specifically, Plaintiffs assert Defendants were imprudent in offering the Fidelity Freedom Funds target date series, the Parnassus Core Equity Fund, the Dodge & Cox Stock Fund, and the Lazard Emerging Markers Equity Fund. Plaintiffs also argue that Plan participants paid excessive recordkeeping and administrative fees and the Plan’s total plan cost was too high.
Judge Thurston upheld Plaintiffs’ duty of prudence claim, finding that Plaintiffs’ allegations concerning the challenged investments’ comparative underperformance, capital flight, and investment industry criticism were sufficient to infer a flawed fiduciary process. Judge Thurston further held that the Complaint’s comparison of the Plan to similar sized plans being charged much lower per-participant administrative fees sufficiently stated claims regarding the Plan’s recordkeeping and total plan cost.
As to the fiduciary duty of loyalty, the Court found it could infer breach because Plaintiffs alleged that the high investment management fees the Plan paid to Fidelity could have contributed to Defendants’ retention of the challenged investments in the Plan.
Furthermore, although Defendants argued that Plaintiffs lack standing to sue because they did not plead that they were invested in the specific funds named in the complaint, Judge Thurston held that, because the allegations speak to “Defendants’ management of the Plan as a whole…Plaintiffs need not plead their individual investment in any particular fund so long as the fees challenged were charged to all plan participants regardless of participants’ specific investments.”
The proposed Class includes Plaintiffs and all similarly situated participants and beneficiaries in the Plan. The proposed Class is represented by Miller Shah LLP, Capozzi Adler, P.C., and Rosman & Germain APC.
The case is In re Sutter Health ERISA Litigation., number 1:20-cv-01007-JLT, filed in the Eastern District of California.
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