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.
