The “other” law firm in the university 403(b) class action litigation has now turned its attention to 401(k)s, filing a $150 million ERISA class action against a large broker/dealer for its use of proprietary funds in its 401(k).
According to a press release, the law firm of Sanford Heisler, LLP has filed a class complaint in the U.S. District Court of the Southern District of New York “detailing the many ways in which Morgan Stanley violates basic fiduciary duties under ERISA and abuses its employees' trust by mismanaging their retirement funds.” The firm filed suit last week against Columbia University’s 403(b) plans, alleging $100 million in damages because of the “many ways” in which Columbia University breached its obligation under ERISA to prudently invest its employees’ retirement savings. That suit was filed just ahead of one submitted by the St. Louis-based firm of Schlichter, Bogard & Denton against Columbia University – one of 12 filed by the latter firm in the past two weeks.
The suit against Morgan Stanley stakes out similar ground(s), claiming that the company invests employees’ retirement savings in “multiple funds that consistently underperform compared to other similar collective investment funds,” and that the company also “steers these investments to Morgan Stanley's own poorly performing mutual funds, profiting off employees’ retirement savings,” and for which the suit claims the firm charges fees “far higher than those it charges outside institutional clients with like assets and investment strategy.”
This suit takes a different tack than others in making its claims, choosing to compare the total return of the plan against that of other financial services firms. The suit claims that, for the years 2011 through 2014, the plan had a total return, excluding Morgan Stanley stock, of approximately 31.6%, noting that Goldman Sachs & Credit Suisse had “superior relative investment returns excluding their company stock performance.” That that is attributable to the funds available, rather than the selection of funds by participants, is apparently assumed.
The suit also takes issue with the selection and maintenance by the Morgan Stanley plan of BlackRock’s target-date funds for some $1 billion in plan assets “despite the fact that BlackRock Institutional Trust Co. NA, was being sanctioned at the time by both the Securities and Exchange Commission and the Commodity Futures Trading Commission for violations of federal laws and regulations.” Claiming that those funds also underperformed their Vanguard counterparts over the past five years, the suit claims that their “selection and retention cost the Plan tens of millions of dollars in investment performance.”
Plaintiff Robert Patterson, a participant in the company’s retirement plan, filed the case on behalf of himself and approximately 60,000 current and former plan participants of the $8 billion plan.
The suit seeks:
- damages for financial losses to plan beneficiaries resulting from the plans’ underperforming investments and excessive fees;
- reforms to Morgan Stanley’s retirement plans that would remove imprudent investments and ensure only reasonable recordkeeping expenses;
- removal of the company’s fiduciaries who have violated their duties to the plans’ beneficiaries under ERISA; and
- a trial by jury.
A number of suits alleging fiduciary breaches due to the presence of proprietary funds on financial services firm menus have been emerging of late, most recently Franklin Templeton, but also M&T Bank, American Century, MassMutual and PIMCO, to name just a few.
