Complaint Alleges Brooklyn Hospital Mismanaged Its 403(b) by Using Retail Share Class

One Brooklyn Health System Inc. faces a complaint for investing assets of one of its 403(b) plans in retail share classes of J.P. Morgan target-date mutual funds instead of utilizing lower-cost institutional versions.  

In Rosen v. One Brooklyn Health System Inc. et al., filed in U.S. District Court for the Eastern District of New York, the plaintiff, Leslie Rosen, filing on behalf of a class of plan participants, was invested in the JPMorgan Smart Retirement 2020 investment option provided by the plan for the Brookdale Hospital Medical Center in the New York City borough of Brooklyn. In choosing to offer the higher-fee version of the fund, the complaint states that the defendants mismanaged the plan by leaving the plaintiffs subject to excessive fees and underperformance.  

According to the complaint, the fund was selected in 2014, but the fund class the plan sponsor selected had expense ratios ranging from 0.86% to 1.03%. The next year, in 2015, other share classes became available with expense ratios ranging from 0.05% to 0.67%.  

Furthermore, from 2014 to 2024, the defendant’s selected class expense ratios ranged from 0.79% to 0.89%, while the expense ratio for the cheaper fund share class ranged from 0.34% to 0.50% 

Not only did the lower-fee version of the fund become available to the plan, according to the complaint, but the share class was “easily identifiable as it was disclosed in the JPMorgan SmartRetirement Fund’s annual prospectus.” 

“Instead of monitoring and taking advantage of their leverage and negotiating lower cost share classes when purchasing fund shares, defendants instead lazily and imprudently offered higher cost fund share classes as investment options for the plan,” the complaint states.  

The complaint also highlights fund selections beyond the J.P. Morgan target-date series. It specifically cites high-cost investments such as the J.P. Morgan Equity Income Fund, Invesco Developing Markets Fund and the Carillon Scout Mid Cap Fund, all of which were allegedly offered to plan participants in pricier share classes. 

As a result, the complaint alleges that plan participants lost at least $4 million across the JPMorgan SmartRetirement target-date-fund investment. 

“It is inexplicable how this grievous share class selection error persisted in the plan for over a decade and is indicative of an imprudent process or no process at all in reviewing and monitoring share class selections,” the complaint states.  

Additionally, the complaint criticizes the plan’s fiduciaries for their revenue-sharing agreements with Transamerica Corp., the recordkeeper, and other service providers. The complaint alleges that such arrangements present conflicts of interest that promote the use of more expensive mutual fund options.  

Furthermore, besides One Brooklyn Health’s relationship with Transamerica, the payments made to other vendors, such as National Financial Services and Mid Atlantic Capital, established a revenue-sharing structure that favored these service providers and the employer, ultimately at the expense of the participants, according to the complaint.  

Plan service providers received a portion of participant fees, raising significant concerns about the fairness and cost-effectiveness of these arrangements, the complaint states. 

The plaintiffs are represented by Milberg Coleman Bryson Phillips Grossman, LLC. The defendants’ legal counsel was not listed in court documents.  

One Brooklyn Health System could not be reached for comment.

The Brookdale Hospital Medical Center 403(b) Plan had more than $373 million in assets with 4,794 plan participants at the end of 2024, according to its most recent Form 5500 filing.