A former employee of the Cedars-Sinai Medical Center, Los Angeles, filed an ERISA lawsuit contending that a 403(b) plan overpaid for administrative services, overpaid for mutual funds in the investment lineup and retained poor-performing investments.
“The plan did not receive any unique services or at a level of quality that would warrant fees far greater than the competitive fees that would be offered by other providers,” said the June 13 complaint in a U.S. District Court in Riverside, Calif. The lawsuit said plan executives should have compared other record keepers to the current record keeper, Voya Financial, which isn’t a defendant.
“Voya’s fees so far exceeded reasonable recordkeeping fees to the point that no differentiation in services could explain the level of recordkeeping fees paid by the plan,” said the complaint in Zimmerman vs. Cedars-Sinai Medical Center et al.
“The clear explanation for this is that defendants have a flawed and reckless provider selection process,” said the lawsuit, which is seeking class-action status. “There are numerous recordkeepers in the marketplace who are capable of providing a high level of service to the plan, and who will readily respond to a request for proposal.”
The plaintiff, who remains a plan participant, criticized the defendants for offering mutual fund share classes with fees the exceeded those of the same funds with lower share-class costs. “In selecting share classes with higher fees, defendants demonstrated a lack of basic skill and prudence when selecting investments,” the lawsuit said.
The plaintiff also alleged that the plan should have chosen another stable value option other than a proprietary Voya product. “Defendants did not have to scour the marketplace to find a better performing fund, it simply had to make an effort, which it failed to make, to determine whether the same fund was available at a lower cost,” the lawsuit said.
A spokesman said in an email that the medical center doesn’t comment on pending litigation.
Cedars-Sinai Health System 403(b) Retirement Plan, Los Angeles, had $2.2 billion in assets as of Dec. 31, 2021, according to the latest Form 5500.