Avoid Hiring Plan Providers Because They Were “Juiced In”

Novant Health, Inc. is a non-profit hospital system based in North Carolina and they agreed to pay $32 million in a settlement regarding a participant lawsuit against their 401(k) plan. What’s so odd about the case is that it was resolved before the case was ever brought to a trial.

Why would a 401(k) plan sponsor agree to such a settlement before the case was brought to trial? Maybe it has something to with allegations regarding the selection of the broker of record for the Plan?

It was alleged by the Plaintiffs that the broker of record had extensive business dealings with Novant Health. It was alleged that the broker entered into land development projects and office building leasing arrangements with the Plan Sponsor. The broker was also accused of providing Novant Health a gift in excess of $5 million by a development company owned by the broker. I don’t know if the allegations are true, but what I do know is that the case settled way early in the game.

I have always told plan sponsors to be wary of hiring financial advisors of 401(k) plans because of nepotism, cronyism, or an existing business relationship. Like trying to hire an inexperienced friend as the Synagogue’s secretary, anything that looks bad will be treated as being bad.  Selection of plan providers should always look as it was done on the up and up.

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