Memorial Hermann Health System, the Houston hospital network that employs more than 32,000 people, has agreed to pay $1.025 million to resolve a federal lawsuit accusing it of mismanaging the 401(k) and 403(b) retirement plans covering its workforce. More than 33,000 current and former plan participants stand to benefit if a federal judge signs off on the deal. No settlement checks have gone out, and none can until the court grants final approval, a process that has only just begun.
The ERISA Lawsuit Behind The Settlement: Jones v. Memorial Hermann Health System
The dispute traces back to a proposed class action filed in June 2024 in the U.S. District Court for the Southern District of Texas under the Employee Retirement Income Security Act, the federal law that sets fiduciary standards for employer-sponsored retirement plans. Participants in Memorial Hermann’s 401(k) and 403(b) plans, which together hold more than $2.5 billion in assets, accused the health system’s board and investment committee of breaching their duties of prudence and loyalty by failing to control plan costs and monitor the plans’ investment lineup.
The litigation, formally styled Jones et al. v. Memorial Hermann Health System et al., No. 4:24-cv-02105, survived multiple attempts by the health system to have it thrown out. A federal magistrate judge recommended denying the defendants’ most recent motion to dismiss in May 2026, describing it as repetitive of arguments the court had already rejected. Participants had also alleged that the plans paid $2.3 million to one investment advisory firm and more than $429,000 to another over a four-year span, expenses they argued were unreasonable given the size of the plans, according to a summary of the case published by employee-benefits law firm Hall Benefits Law. The parties reached a settlement shortly after the dismissal ruling.
The original 2024 complaint identified Fidelity Investments as the plans’ recordkeeper and alleged it charged roughly $40 per participant annually, even though the health system’s fiduciaries had the bargaining leverage, given the plans’ size, to negotiate fees closer to the $10-to-$28 per-participant range that comparably sized plans reportedly paid. The complaint also challenged the plans’ reliance on a single target-date fund lineup, the JPMorgan SmartRetirement series, as the sole default option despite years of alleged underperformance. U.S. District Judge Alfred Bennett has presided over the case since it was filed, according to the original PLANSPONSOR report on the lawsuit.
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A $1.025 Million Deal That Still Needs A Judge’s Sign-Off
The health system and the plan participants asked the court to grant preliminary approval of the settlement in a motion, and reporting on that filing put the $1.025 million figure at between 11% and 23% of participants’ maximum estimated damages in the case, according to Bloomberg Law’s report on the settlement. More than 33,000 current and former participants are expected to be covered by the class-wide deal if it clears the approval process. Preliminary approval is only the first of at least two required court sign-offs; a settlement of this kind typically also requires a fairness hearing, a notice period for class members, and a final approval order before any funds move. None of those later steps has happened yet, and the health system has not admitted wrongdoing.
How A $40-Per-Participant Recordkeeping Fee Becomes Exhibit A
Excessive-fee lawsuits like this one typically turn on numbers that any 401(k) participant can find in their own paperwork. Recordkeeping and administrative costs, the category at issue in the Memorial Hermann case, are either folded into a fund’s investment returns or charged separately as a flat dollar amount or a percentage of each account balance. Federal guidance also notes that plans with more total assets can often access lower-cost fund share classes sold to larger institutional investors, while smaller plans, or plans that fail to negotiate, are frequently left paying retail-level fees for the identical fund, according to the Labor Department’s “A Look at 401(k) Plan Fees”. A large plan allegedly paying retail-level costs is precisely the pattern participants raised against Memorial Hermann.
Every 401(k) plan is also required to file an annual Form 5500 reporting its assets, participant count, and aggregate administrative expenses, filings that are searchable by the public through the Department of Labor’s EFAST2 electronic filing system. That record, together with the comparative fee chart participants receive from their plan each year, gives any saver a way to check whether their own plan’s recordkeeping costs run closer to Memorial Hermann’s alleged $40-per-participant rate or to the lower range participants cited as the benchmark.
Institutional Pricing, Retail Pricing, And The Target-Date Fund Question
The other allegation in the case, that the plans’ default target-date fund underperformed for years without being replaced, points to a separate fiduciary duty. Federal guidance instructs plan fiduciaries to establish a documented process for both selecting and periodically reviewing target-date funds, including comparing a fund’s fees, its glide path toward and through retirement, and its performance against an appropriate benchmark index, according to the Labor Department’s fiduciary guidance on target-date funds. A disclosure rule that took effect for most plans in August 2012 was designed to make that comparison possible by requiring plans to give participants standardized fee and performance information for every investment option, including target-date funds, at least once a year.
Whether Memorial Hermann’s fiduciaries met that monitoring standard was never decided by a jury; the case ended in a proposed settlement rather than a trial verdict. What the litigation leaves behind is a template built from two figures any retiree or near-retiree can pull from their own plan documents: the per-participant recordkeeping charge and the share class of the funds sitting inside the account. Those numbers, laid out in the Memorial Hermann complaint and now central to a settlement still awaiting a judge’s approval, are what the underlying allegations were actually about.
This article was produced with the assistance of AI and reviewed by The Financial Wire editorial team.
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David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
