Novant Health of Charlotte, NC, which was the object of a class action lawsuit brougt by plan particpants and lawyer Art Schlicter, just agreed to settle for $32 million plus a max of $10.6 million in plaintiff’s attorney’s fees. The class action lawsuit was mainly over excessive fees paid to the plan’s broker. Here’s the link to the article Case Against Novant Health Settles Early for $32 Million
Several points are worth noting.
- The total expense will be very large, over $42 million, not counting lost productivity for senior management and their own attorney’s fees.
- Novant must come up with a revised investment policy statement (IPS). There’s a reason I advocate so strongly for strengthening the IPS. Most I run aross are worthless, if a company even has one.
- Novant must have an independent consultant review the plan and help with the hiring of other service providers. This is a service I provide.
- Novant must have the investment lineup reviewed by an independent consultant. I also p rovide this service. High fund operating expenses often hide a great deal of fees while trustees think they pay little or nothing.
- Novant will go through a process to choose new providers, not just hiring their banker, insurance agent or friend. Ignoring this simple, common sense rule has gotten countless plans in poor shape.
- The relationship between the broker and the CEO was way too close and led to lax oversight and unconscionable actions. 401(k) plans should not be tied to other relationships that can sway decisions.
- Novant will no longer pay for administrative services on a % of assets fee. I insist on this when I help with plans, but nearly all plans I look at below $25 million currently do this. With asset-based fees, fees grows automatically as the plan grows, but with no increase in service – very lucrative for the plan provider, but it makes no sense from a plan trustee’s viewpoint. This should be made illegal except in startup and very small plans.