FOLLOW US

A federal judge has partially revived a lawsuit targeting Froedtert Health over allegations of mismanagement of its 403(b) retirement plan, allowing core claims related to excessive recordkeeping fees to move forward while dismissing allegations involving investment management fees.

In a ruling issued Monday, U.S. District Judge Pamela Pepper issued a mixed decision in the Employee Retirement Income Security Act (ERISA) case filed by former employee Nitish S. Bangalore. The ex-worker initially launched the class action in June 2020, accusing the Wisconsin-based health system and its fiduciaries of breaching their duty to plan participants.

A 403(b) plan, commonly used by nonprofits, functions similarly to a 401(k), offering employees tax-deferred retirement savings. Bangalore alleged that Froedtert’s fiduciaries failed to act prudently by allowing exorbitant recordkeeping fees and retaining costly investment options.

Judge Finds Recordkeeping Allegations Plausible

Judge Pepper found that the plaintiffs’ comparisons to other plans were plausibly sufficient, noting that Froedtert’s retirement plan was larger than 99.91% of all other defined-contribution plans in 2021. This, she said, gave weight to claims that the system should have negotiated lower fees.

“Because the complaint asserts that recordkeeping services are fungible and that the comparator plans received services of a materially identical level and quality, the higher fees paid by the defendants for the same services creates an inference of unreasonableness,” Judge Pepper wrote.

The plaintiffs had pointed to comparator plans with similar asset sizes and participant counts that paid substantially lower fees, raising red flags about Froedtert’s alleged failure to control plan costs.

Investment Fee Allegations Fall Flat

However, the judge was unconvinced by allegations surrounding investment management fees. The complaint cited only one lower-cost fund to challenge the costliness of Froedtert's offerings—an approach that didn’t cut it.

“The complaint needed more than just one fund; it needed a range of comparators and more details about their characteristics,” Pepper noted.

Without this comparative context, the court found no substantial basis to support the claim that Froedtert acted imprudently with regard to its investment offerings.

Other Claims Dismissed, But Some Monitoring Allegations Remain

While Judge Pepper tossed claims for injunctive relief—ruling that Bangalore, as a former participant, lacked standing—she allowed failure-to-monitor claims tied to the recordkeeping allegations to proceed. However, monitoring claims related to the dismissed investment fee arguments were removed.

The judge’s decision trims the scope of the case but leaves Froedtert’s plan fiduciaries exposed to significant scrutiny over how they managed the administrative costs of the plan.

Next Steps in the ERISA Showdown

Counsel for Bangalore and the proposed class declined to comment following Monday’s order. Representatives from Froedtert Health and its attorneys at Mayer Brown LLP also did not immediately respond to requests for comment.

The plaintiffs are represented by Walcheske & Luzi LLC, including attorneys James A. Walcheske, Scott S. Luzi, David M. Potteiger, and Paul M. Secunda.

Froedtert Health’s defense team includes Nancy G. Ross, Elaine Liu, and Alex C. Lakatos of Mayer Brown LLP.

The case continues to wind through the court with its heart still beating—thanks to a recordkeeping claim that refuses to be buried.