Lawsuit accuses Novant of charging millions in excessive fees on retirement plan
Novant Health Inc. is facing a potential class-action lawsuit focused on the fee cost for its defined-contribution retirement plan from six current and former employees, including a former chief staff of a Triad community hospital.
The lawsuit was filed today in the U.S. District Court for the Middle District of N.C. in Greensboro by a St. Louis law firm. To read the entire lawsuit, click here.
Among the plaintiffs is Karolyn Kruger, a retired doctor who served as chief of staff at Thomasville Medical Center.
According to the law firm of Schlichter, Bogard & Denton, there are about 25,000 affected Novant employees since they have been automatically enrolled in the retirement plan since 2009. Novant operates 14 medical centers in the Carolinas, Georgia and Virginia, including four in Forsyth County and five in the Triad.
Since that plan enrollment policy decision was made, its assets have more than doubled to $1.42 billion from $612 million in 2008, according to the complaint.
“We allege that Novant has breached its fiduciary duty under the law, a duty designed to ensure that fees charged to its employees and retirees are reasonable, that prudence is used in selecting and monitoring investment options, and that conflicts of interest and self-dealing are avoided,” Jerry Schlichter, an attorney representing the plaintiffs.
“It has failed in that duty.”
Also listed as defendants are Novant’s administrative and retirement plan committees. Novant could not be reached for immediate comment on the lawsuit.
The law firm accuses Novant of breaching its fiduciary duties by causing the plan participants to pay millions of dollars in excessive record-keeping and administrative services fees to third-party service providers.
The complaint also alleges breaches of fiduciary duties resulting from Novant’s decision to invest in “imprudent investment options. These breaches resulted in substantially reducing the retirement assets of participants.”
The complaint also alleges the defendants “consistently and fraudulently concealed their breaches, and the breaches of others by, in part, informing plan participants that they were not paying certain fees for the plan, but that Novant paid.”
The complaint claims D.L. Davis & Co. of Winston-Salem, a brokerage company that provides the plan with limited marketing and enrollment services, has been paid excessive fees up to $9.6 million from 2009 to 2012 in the form of “commissions.”
The complaint states D.L. Davis also received a second source of revenue in the form of “kick-backs” from the managers of the plan investment options.
The law firm also focused on the relationship between Derrick Davis, chief executive and president of D.L. Davis, and Novant. Davis could not be reached for immediate comment about the lawsuit’s accusations.
The attorneys said Davis, “through other corporate entities he owns or controls, has entered into a variety of land development projects and office building leasing arrangements in the greater Winston-Salem area with Novant.”
For example, the law firm said Davis had made a charitable gift of more than $5 million to Novant. About the same time, a Davis-owned development company in which he is an officer, manager and/or owner, East Coast Capital, announced plans to develop the Southeast Gateway project in Winston-Salem. The project included Novant occupying 40,000 square feet for a call center.
The plaintiffs are requesting a court order removing the committee that oversees the plan, as well as appointing an independent administrator and granting unspecified restitution, damages, interest and legal costs.
The complaint also said Great-West Life & Annuity Insurance Co., an administrative and recordkeeping service provider, received excessive compensation of $8.6 million between 2009 and 2012.