Hospital Argues that ERISA Fees were Reasonable, But Will the Court Agree?

Recently, the Boston Children’s Hospital asked a judge in federal court to dismiss a case brought by former employees that alleged the charging of “exorbitant” fees relating to the management of ERISA retirement plans. The Hospital argues that fees associated with the plans were not exorbitant and no damage was sustained by plan members under the class, thus the case against them should be dismissed. The Hospital additionally argues that there was no requirement for them to pick the lowest possible costs for administration of their ERISA plans. Further, they argue that the plaintiffs in the class at issue were not deeply invested in the plans that are involved.

The Plaintiffs (former employees of the Hospital) in the class allege that the Hospital’s fiduciary duties under ERISA were breached when they overcharged participants for fees relating to recordkeeping. Further, the Plaintiffs allege that the Hospital encouraged participants to invest in funds that were more expensive than others and underperformed compared to their counterparts. The case was originally brought by four former employees of the Hospital, with the class now encompassing compensation for 18,580 employees. The Plaintiffs state that while participants in similar plans were required to pay between $23 to $42 per year in recordkeeping fees, participants in the Hospital’s plans at issue paid $73. The large size of the plan, according to the Plaintiffs, would have enabled them to negotiate for lower fees if the Hospital had been proactive about ensuring the performance of their duties to the participants.

The Hospital counters in their motion to dismiss that, “ERISA does not require Children’s to select the least expensive or best performing investment, and Plaintiff’s cannot plausibly allege a breach merely by pointing to alternative target date funds that have some similarities and that purportedly cost a bit less or performed a bit better.” Further, the Hospital alleges that the Plaintiffs are essentially attempting to make arguments that are directly opposed, stating that there are no comparable plans that are both less expensive and perform better than that those at issue in the case. Regarding the plans exemplified by the Plaintiffs as less expensive, the Hospital states that the cheaper plans did not perform as well as those chosen by the Defendant. The plans argued by the Plaintiffs to be comparable also had different payment structures and provided different services to participants, according to the Hospital.

The Defendant states that even if the allegations against their management of the plan were accurate, the Plaintiffs in the case have no cause of action for plans in which they did not specifically invest. The Hospital argues that this results in the named Plaintiffs having no claim for relief, therefore the suit should be dismissed.

Lastly, the Hospital argues that the amount of recordkeeping fees alleged in the case relate to 2020 prices, when none of the named Plaintiffs were involved in payment of plan fees.

The question is now posed to the Court of whether the arguments brought by the Defendant should result in dismissal of the case. Courts have recently held that classes of plaintiffs in similar situations are entitled to certification and a chance to litigate their claims. The facts of this case regarding the level of participation the Plaintiffs actually engaged in by paying excess fees may change this result. However, courts have made it apparent that when plaintiffs have paid excess fees under ERISA plans, they are entitled to appropriate legal recourse.