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MFS Excessive Fee Suit Settlement Unveiled

Fiduciary Governance

Plaintiffs Melissa Velazquez and Frances Fuentes-Noriega have submitted the terms of a proposed settlement with the court.

The parties had announced having come to terms last month – just days before the case was set to go to trial. The original class action suit, filed nearly two years ago, claimed that the MFS defendants “have used the Plans as an opportunity to promote MFS’s mutual fund business and maximize profits at the expense of the Plans and their participants,” and that they had “…loaded the Plans primarily with MFS’s investment offerings, without investigating whether Plan participants would be better served by investments managed by unaffiliated companies.”

The suit claimed that those actions “cost Plan participants millions of dollars in excess fees,” alleging that “in 2012, the Plans’ total expenses were approximately 91% higher than the median total costs for retirement plans with between $500 million and $1 billion in assets (the Plans had a combined $515,246,820 in assets as of the end of 2012).”

Settlement Terms

Under the terms of the proposed Settlement (Velazquez v. Mass. Fin. Servs. Co., D. Mass., No. 1:17-cv-11249-RWZ, motion for settlement approval 6/14/19), MFS will cause its insurer(s) to pay a gross settlement amount of $6,875,000 into a common fund for the benefit of approximately 3,000 Settlement Class Members, an amount the plaintiffs noted that this was “… a significant monetary recovery for the Class and falls well within the range of court-approved settlements in similar ERISA cases.” The settlement agreement explains that this amount is approximately 30% of the estimated damages suffered “if Plaintiffs were to prove liability and maximum damages on every single one of their arguments, which is unlikely.” The plaintiffs also note that the damages calculations also include some overlap, “meaning the actual recovery is closer to 40% of Plaintiffs’ best-case scenario, without acknowledging any of the inherent risks of proceeding to trial.” 

Beyond the monetary terms, the settlement also calls for changes in plan administration, “for a period of no less than three years”:

  • MFS will designate a series of index-fund based Target Date Funds that are unaffiliated with MFS as the Plans’ QDIAs; and
  • MFS will also engage a Third-Party Investment Consultant unaffiliated with MFS to provide an annual evaluation of the Plans’ investment lineup and review the Plans’ investment policy statement. The plaintiffs state that this “directly addresses the main issues that Plaintiffs raised in the lawsuit (alleged self-interested selection of proprietary funds and alleged failure to monitor low-performing proprietary funds and administrative expenses from the Plans), and further supports approval of the Settlement.”

Other Terms

The Settlement Agreement requires that Class Counsel shall file their Motion for Attorneys’ Fees and Costs at least 30 days before the deadline for objections to the proposed Settlement – and that those fees, which are subject to Court approval, are capped at no more than 25% of the Gross Settlement Fund ($1,718,750), plus litigation costs and Settlement Administration Expenses.

The Settlement also provides for service awards up to $10,000 per Class Representative, subject to Court approval.

Getting to Settlement

The other costs of litigation to date were also summarized in the settlement agreement, including “extensive discovery, including: (1) production of more than 90,000 pages of documents by Defendants; (2) production of more than 3,500 pages of documents by Plaintiffs; (3) production of more than 2,000 pages of documents by third parties; (4) five depositions of fact witnesses; and (5) Plaintiffs’ retention of and consultation with three expert witnesses.” They also included a full-day mediation (May 9) before David Geronemus of JAMS Mediation.

With this settlement, MFS joins a long list of financial firms settling such claims, including Eaton Vance ($3.45 million), Franklin Templeton ($4.3 million), BB&T ($24 million), Jackson National ($4.5 million), Deutsche Bank ($21.9 million), American Airlines Group Inc. ($22 million), Allianz SE ($12 million) and TIAA ($5 million).