Boston Children’s Hospital and its board of directors and retirement committee face a proposed class action that alleges they have unlawfully failed to select prudent investment options and ensure the costs of investment, recordkeeping and administrative services for plan participants and their beneficiaries remain reasonably low.
The 52-page lawsuit alleges the Children’s Hospital Corporation defendants have breached their fiduciary responsibilities under federal law by failing to fully disclose the Boston Children’s Hospital retirement plan’s investment costs and risks while allowing “unreasonable expenses” to be charged to the plan’s more than 18,000 participants. Moreover, the defendants allegedly selected, retained or otherwise green-lit high-cost, poorly performing investments rather than offering more prudent alternatives that were readily available.
As of December 31, 2020, the Boston Children’s Hospital Corporation Tax-Deferred Annuity Plan had 18,580 participants and assets totaling more than $1.1 billion, which placed the plan in the top 0.1 percent of all defined contribution retirement plans by size, the lawsuit says. Given the plan’s stature, the defendants, the case argues, have significant bargaining power and the ability to demand lower-cost administrative and investment management services within the marketplace.
Ultimately, it is the defendants’ responsibility, as fiduciaries, under the federal Employee Retirement Income Security Act (ERISA), to act “for the exclusive benefit of participants, ensure that the investment options offered through the Plan are prudent and diverse, and ensure that Plan expenses are fair and reasonable,” the complaint states.
According to the lawsuit in Massachusetts, the defendants allowed the Boston Children’s Hospital retirement plan to be charged recordkeeping and administrative fees that “far exceeded the reasonable market rate,” and “unquestionably” should have been able to obtain significantly lower rates for participants.
“In light of the amounts remitted to Fidelity throughout the Class Period, Defendants clearly engaged in virtually no examination, comparison, or benchmarking of the [recordkeeping and administrative] fees of the Plan to those of other similarly sized defined contribution plans, or were complicit in paying grossly excessive fees,” the complaint charges.
The suit goes on to allege that “[a] simple weighing of the benefits” of all other available target date funds outside of the 14 in which the plan invested would have raised for more discerning fiduciaries a “significant red flag” that showed the suite of investments was neither suitable nor prudent:
“In addition, any objective evaluation of the Active suite would have resulted in an examination of and the selection of a more consistent and better performing and more appropriate TDF than the Active suite. Had Defendants carried out their responsibilities in a single-minded manner with an eye focused solely on the interests of the participants, they would have come to this conclusion and acted upon it.”
The lawsuit looks to represent all individuals who were participants in and beneficiaries of the Children’s Hospital Corporation Tax-Deferred Annuity Plan at any time on or after January 12, 2016 and continuing to the date of judgment in the suit.
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