Another excess fee lawsuit has been filed — this one alleging excess record keeping fees, imprudent investment selections and at least a hint of undue influence in the selection of the provider.
The suit, filed in the District of Colorado by the law firm of Schlichter Bogard & Denton, was brought against Oracle Corp. The complaint alleges that Oracle allowed the plan record keeper Fidelity to be paid between $68 to $140 per participant rather than what the plaintiffs said would be a reasonable per head fee of $25 for a plan the size of Oracle’s. According to the complaint, the plan’s participant count increased from 38,000 in 2009 to about 60,000 today, and over that same time period, the plan’s assets increased from $3.6 billion to more than $11 billion.
Bidding Wares?
The suit charged that record keeping vendors will readily bid for servicing a jumbo plan, such as Oracle’s 401(k) plan, on a “flat, low, per-participant fee basis, if plan fiduciaries put plan recordkeeping services out for competitive bidding.” However, the complaint goes on to note that while Fidelity had been the plan’s record keeper since 1993, “defendants have not informed participants that they have not put the Plan’s services out for competitive bidding in the last 26 years,” though that allegation does not necessarily establish that perception as fact.
The complaint also alleged that the plan provided “at least 3 imprudent investment options,” which it says “consistently underperformed their designated benchmarks, consistently underperformed the majority of other funds of the same investment style, charged excessive fees, and paid revenue sharing to Fidelity far beyond a reasonable rate for the services provided.”
The funds highlighted were the Artisan Small Cap Value Fund, the PIMCO Inflation Response Multi-Asset Fund and the TCM Small-Mid Cap Growth Fund. As a result, the complaint claims that “Defendants caused tens of millions of dollars in losses to the Plan at the expense of participants” by providing and retaining “more expensive funds with inferior historical performance that paid revenue sharing and generated investment management fee revenues for Fidelity.”
As for that undue influence, the complaint noted that Fidelity is the sixth largest institutional holder of Oracle stock, owning more $2 billion in shares, and “Thus, Fidelity has the influence of a large stockholder in light of its stock ownership,” before going on to note that “Oracle has chosen and maintained funds from one of its largest shareholders, Fidelity, to be investment options in the Plan,” as well as its role as record keeper.
