CHS/Community Health Systems Inc., Franklin, Tenn., reached a settlement in a class-action lawsuit alleging the company breached its fiduciary duties in the investment management of its 401(k) plan.
The lawsuit, filed in U.S. District Court in Nashville in August 2019 by three 401(k) plan participants, alleged that CHS breached its fiduciary duties under the Employee Retirement Income Security Act of 1974 by offering “excessively expensive and poorly performing index funds in the plan that were managed by Principal,” according to the original court filing.
The lawsuit said Principal, the plan’s record keeper, had a conflict of interest in offering its proprietary index funds “despite fees that were several times higher than marketplace alternatives that tracked the exact same index.” The suit also said the Principal index funds “deviated further from the benchmark index” so performance was worse than funds offered by other record keepers.
Under the terms of the settlement as shown in a Dec. 4 court filing, CHS will pay a gross amount of $580,000 into a common fund for class members, representing about 50% of the damages and 94% of excess fees in the standalone Principal index funds in the plan: the Principal Large Cap S&P 500 Index fund, Principal MidCap S&P 400 Index fund and Principal SmallCap S&P 600 Index fund.
CHS spokesman Ross W. Comeaux, Principal spokeswoman Teresa Thoensen and Jerry Martin, partner at Barrett Johnston Martin & Garrison, the plaintiffs’ attorney, could not be immediately reached to provide comment.