Participants in a 401(k) plan and a 403(b) plan run by Allina Health System, Minneapolis, have sued the plans' fiduciaries, claiming they breached their duties by failing to adequately monitor investment options and by offering higher-cost options.
The fiduciaries "did not try to reduce the plans' expenses or exercise appropriate judgment to scrutinize each investment option that was offered in the plans to ensure it was prudent," according to the complaint filed Aug. 18 in U.S. District Court in Minneapolis.
"Defendants abdicated their fiduciary oversight," said the complaint, Larson et al. vs. Allina Health System et al., in seeking class-action status. The defendants breached their fiduciary duties by, among other things, "failing to establish and use a systematic process to monitor the performance and cost of the investment options."
The participants alleged the investment lineups contained more than 300 mutual funds, "most of which were Fidelity's own mutual funds that charged retail prices or were funds that paid a portion of the investment management fee to Fidelity," the complaint said. Fidelity Investments, the record keeper for the plans, is not named as a defendant.
The participants complained that Fidelity was allowed "to select its own proprietary funds … as well as other funds paying fees to Fidelity for inclusion in the plans," the complaint said.
Plaintiffs criticized the fiduciaries for "failing to use the plans' high levels of assets to negotiate lower fees for certain funds," the complaint said.
"We are still reviewing the complaint and have no comment at this time," David Kanihan, a spokesman for Allina, said in an email.
The Allina 403(b) Retirement Savings Plan had $967.4 million in assets as of Dec. 31, according to it latest Form 5500. The plan stopped accepting new entrants in October 2010. By Jan. 1, 2011, employer matching contributions, employee salary deferrals and discretionary employer contributions were frozen, the complaint said.
The Allina 401(k) Retirement Savings Plan had $1.44 billion in assets as of Dec. 31, according to the latest Form 5500. In conjunction with the 403(b) plan freeze, "all eligible Allina employees became participants in the 401(k) plan" effective Jan. 1, 2012.
The participants are represented by four law firms: Nichols Kaster; Kessler Topaz Meltzer & Check; Bailey Glasser; and Izard Kindall & Raabe.