ERISA Lawsuit Claims Centene Corp. Failed to Properly Monitor Employee Retirement Plan Costs

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A proposed class action alleges Centene Corporation and its board of directors and retirement plan committee have failed to prudently monitor the plan’s expenses and select prudent investment options.

According to the 30-page lawsuit, the Centene defendants have not only caused plan participants and beneficiaries to pay excessive recording keeping fees but selected as investment options expensive, poorly performing funds. The case contends that this evidences Centene’s failure to engage in a prudent process with respect to managing the plan’s costs and investments.

The lawsuit alleges Centene, a managed care organization serving government-sponsored and commercial healthcare programs, and its co-defendants have violated their duties as fiduciaries under the Employee Retirement Income Security Act (ERISA).

The case explains that the Centene employee retirement plan, with over $3.1 million in assets under management as of December 2020, is a “jumbo” defined-contribution plan that is among the largest in the U.S., meaning the plan has “substantial bargaining power” when it comes to negotiating low costs and expenses charged against participants’ investments.

The lawsuit argues, however, that the defendants did not attempt to reduce the plan’s expenses by selecting lower-cost investment options, or properly “scrutinize each investment option” offered in the plan to ensure it was a prudent choice. According to the case, several funds available in the plan were more expensive than comparable funds in similar plans and had “excessively high expense ratios” as compared to the average fees for funds in similarly sized plans. 

“The expense ratio for one of these funds during the Class Period [February 22, 2016 through the date of judgment in the case] was 333% above the ICI Median (in the case of UBS US Small Cap Growth P) and in another case the expense ratio was 270% above the ICI Median (in the case of Northern Small Cap Value) in the same category,” the complaint expounds.

The lawsuit argues that it is in the best interest of plan participants for fiduciaries to properly consider the effects that a fund’s expense ratio will have on the plan’s investment returns, alleging it is “unlikely” that the defendants engaged in a prudent process when selecting funds for the plan. Moreover, nine of the funds with allegedly excessive expense ratios also performed more poorly than their less expensive peers, the suit adds.

The case goes on to claim that the Centene plan’s recordkeeping and administrative costs were “much higher” than those of its peers. According to the case, although national recordkeepers have the ability to provide services at “very little cost” to large defined-contribution plans such as Centene’s, the defendants used a combination of a flat recordkeeping charge and revenue sharing to “saddle[] Plan participants with above-market recordkeeping and administration fees.”

Because the defendants paid the plan’s recordkeeper at above-market rates, “there is little to suggest” that they regularly monitored trends in the marketplace to determine whether lower fees were available from other service providers, the suit alleges. In fact, the plan should have been eligible for “some of the lowest fees on the market” given its size, yet the defendants allowed plan participants to be charged as much as $79 each for recordkeeping fees during the relevant timeframe, according to the case. The lawsuit says the defendants “should not have been paying more than $21 per participant” for recordkeeping and administrative fees.

According to the suit, the defendants’ failure to obtain lower cost recordkeeping fees and less expensive investment options has cost plan participants “millions of dollars of damages.”

The lawsuit looks to cover anyone who was a participant in or beneficiary of the Centene employee retirement plan at any time between February 22, 2016 and the date of judgment in the case.

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