A large physician-owned medical practice in California will pay $8.75 million to settle a lawsuit by current and former 401(k) plan participants who accused the plan of paying excessive record-keeping fees in violation of federal law.
The proposed class-action settlement with CEP America LLC, doing business as Vituity, was announced March 14 in a document filed by attorneys for the plaintiffs and for the defendants’ in a U.S. District Court in San Francisco.
The agreement, achieved through mediation, must be approved by the court in Nagy et al. vs. CEP America LLC et al. The agreement also calls for some structural changes to the 401(k) plan.
“By paying the settlement amount, defendants do not agree with or in any way admit, and shall not be deemed to agree with, or in any way admit, any theories of plaintiffs or class counsel regarding defendants’ liability in the action,” the document said.
Current and former participants sued the medical practice and its plan fiduciaries in November 2023 alleging violations of ERISA due to fees charged by Charles Schwab & Co., the plan’s record keeper. Schwab isn’t a defendant.
Plaintiffs also accused CEP America of improperly paying itself out of employees’ retirement savings and that profits from the Schwab deal were used in part to offset costs of nonplan services to the company.
In addition to the settlement money, the defendants agreed, within 90 days of the agreement’s approval, to seek legal and/or investment advice on removing the Schwab Savings Account from the investment lineup and replacing it with a capital preservation fund.
“The company further agrees not to charge the plan for services provided to the plan by the company during the compliance period," the document said.
The compliance period runs for five years from the date the settlement takes effect.
The settlement covers participants between Nov. 1, 2017, and Jan. 31, 2025. The original complaint said more than 5,000 participants could be affected,
CEP America employs more than 6,000 clinicians, owns more than 690 medical practices and treats more than 10 million patients, according to its website.
The 401(k) Profit Sharing Plan for Employees of MedAmerica Inc., Emeryville, Calif., had $1.8 billion in assets as of Dec. 31, 2023, according to the latest Form 5500.
