(Bloomberg) — Novant Health Inc. employees are suing the nonprofit hospital system for allegedly overcharging them in their retirement accounts by millions of dollars, according to a complaint filed today that highlights how workers’ savings are eroded by high fees to financial firms.
In the latest of more than a dozen lawsuits against employers since 2006, a retired doctor and six others are alleging Novant’s plan saw a more than 10-fold increase in fees over three years and contains costly investment choices, according to a complaint filed today in federal court in Greensboro, North Carolina. The lawsuit also highlighted ties between the hospital and a brokerage, D.L. Davis & Co., whose founder Derrick L. Davis gave more than $5 million in charitable gifts to Novant, after which he earned fees from the plan.
“Novant employees have had to pay excessively high fees out of their retirement assets with no increase in services for those fees,” said Jerry Schlichter, founding partner of the law firm Schlichter Bogard & Denton, LLP, which filed the case on behalf of workers. “That’s simply wrong.”
Lockheed Martin Corp., Caterpillar Inc. and ABB Ltd. are among large employers sued over the last eight years as lawmakers and employees have intensified their scrutiny of fees in retirement accounts, which have replaced traditional pensions as the primary savings vehicle for old age. Companies including Facebook Inc. and Whole Foods Market Inc. are also holding back on the amount and timing of their contributions to worker savings plan, making it more difficult for Americans to save for retirement.
Americans held $5.6 trillion in defined contribution plans, including 401(k)s and 403(b)s, as of Sept. 30, according to the Investment Company Institute. Winston-Salem, North Carolina- based Novant’s tax-deferred savings plan for workers is a 403(b) used by nonprofits such as hospitals and universities.
A variety of providers such as recordkeepers, which provide administrative services to retirement plans, consultants, brokers and investment managers make money from 401(k)-type plans. It’s generally difficult for workers to determine how much they are paying in fees, and to whom, because those deals are buried in private contracts between financial firms and employers, and in government filings.
Employees usually have little power to change investments and costs in their plans, which is why some — like those at Novant — have resorted to filing lawsuits.
About 25,000 Novant employees are in the retirement plan, according to the complaint. The plan’s assets have more than doubled to $1.42 billion from $612 million in 2008, the plaintiffs said.
Novant operates 14 medical centers along with clinics, outpatient surgery centers, medical plazas, rehabilitation programs, imaging centers and community health programs in North Carolina, Virginia, South Carolina and Georgia, according to its website.
Karolyn Kruger, a retired physician and lead plaintiff in today’s complaint, wrote to Novant’s administrative committee on Jan. 27, requesting a copy of the company’s retirement plan documents and contract with its recordkeeper, Great-West Lifeco Inc.’s U.S. annuity business, according to the court filing. She hasn’t received a response, according to the filing.
At issue in the Novant case are alleged excessive fees paid to the Great-West and D.L. Davis, according to the complaint. While most companies can negotiate lower fees for retirement plans with more than $1 billion in assets, Novant’s plan saw a jump in costs even as assets rose from 2009 to 2012, according to the complaint. Novant workers paid mutual-fund fees that were more than 100 percent higher than what plans of comparable size are offered.
“Given the massive bargaining power of a plan at or near $1 billion in total plan assets, a ‘large’ plan in industry terms, prudent fiduciaries consider far lower cost investments that are accessible to institutional investors,” lawyers for the employees said in the complaint.
Great-West was paid $2.3 million by the retirement plans in 2012 compared with $195,899 in 2009, according to the complaint. The insurer also received additional payments from money management firms with investment options in the plan, according to the filing.