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MFS Settles Excessive Fee Suit by Former Participant


Another fund manager strikes a deal in an excessive fee brought by a former participant – just days before the matter was scheduled to go to trial.

This suit involved MFS and its actions as plan fiduciary with its two defined contribution plans. A notice of settlement states that “the parties expect to be able to finalize a comprehensive settlement agreement and file a motion for preliminary approval within 35 days of this notice.” A case management conference was scheduled for May 16, 2019 at 9:00 a.m.

Claims Sustained

The suit was filed by Melissa Velazquez, a participant in the MFS DC Plan from “the start of the class period until 2014.” Three of the five counts alleged in the suit survived a motion to dismiss last summer (claims that the mutual fund fees paid to MFS as manager of the plans was a prohibited transaction was rebuffed because she over-read the meaning of “plan assets,” according to the court), as were claims seeking to recover any assets of the two plans that MFS may have transferred to its affiliated companies, which the court said were too broad.

Together, the two MFS plans in question held more than $515 million in assets as of 2012 and paid plan fees totaling 0.86 % of that amount, or $4,416,791, Judge Rya W. Zobel of the U.S. District Court for the District of Massachusetts had noted at that time, while the median rate of management and related fees for similarly sized plans in 2012 was 0.45%, he wrote.

Original Suit

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).” Ultimately, as so many of these type of suits have previously alleged that:

  • the plans’ high costs are “largely attributable to Defendants’ selection and retention of high-cost proprietary mutual funds as investment options within the Plan”;
  • the defendants “failed to select the least expensive share class available for the Plan’s designated investment alternatives, failed to investigate the use of separate accounts and collective trusts as alternatives to mutual funds”; and 
  • the defendants failed to monitor and control recordkeeping expenses. 

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).

The case is Velazquez v. Massachusetts Financial Services Company et al., case number 1:17-cv-11249, in the U.S. District Court for the District of Massachusetts.