United States District Court, D. Massachusetts
MELISSA VELAZQUEZ, individually and as representative of a class of similarly situated persons, and on behalf of the Massachusetts Financial Services Company Defined Contribution Plan and the Massachusetts Financial Services Company MFSavings Retirement Plan
MASSACHUSETTS FINANCIAL SERVICES COMPANY, d/b/a MFS Investment Management, MASSACHUSETTS FINANCIAL SERVICES COMPANY RETIREMENT COMMITTEE, MASSACHUSETTS FINANCIAL SERVICES COMPANY RETIREMENT INVESTMENT COMMITTEE, MFS SERVICE CENTER, INC., and JOHN DOES 1-30
ZOBEL SENIOR UNITED STATES DISTRICT JUDGE
in this purported class action challenges the management of
two retirement plans, with allegations that Defendants
Massachusetts Financial Services Company d/b/a MFS Investment
Management, the Massachusetts Financial Services Company
Retirement Committee, the Massachusetts Financial Services
Company Retirement Investment Committee, MFS Service Center,
Inc., and John Does 1-30 have violated the Employee
Retirement Income Securities Act (“ERISA”), 29
U.S.C. § 1001 et seq. Defendants move to dismiss. For
the reasons stated below, the motion is allowed in part and
denied in part.
requires that fiduciaries act “solely in the interest
of the participants and beneficiaries, ” 29 U.S.C.
§ 1104(a)(1), with the “care, skill, prudence, and
diligence” that would be expected in managing a plan of
similar scope. 29 U.S.C. § 1104(a)(1)(B). These general
duties of loyalty and prudence are refined in 29 U.S.C.
§ 1106, which prohibits fiduciaries from engaging in
certain transactions alleged to have occurred here.
is a former employee of defendant Massachusetts Financial
Services Company (“MFS). During the relevant period,
MFS offered eligible employees two tax-deferred retirement
plans: the employee-funded Massachusetts Financial Services
Company MFSavings Retirement Plan (“Employee
Plan”), and the employer-funded Massachusetts Financial
Services Company Defined Contribution Plan (“Employer
Plan”), (together, the “Plans”). Under the
Employee Plan, employees could elect to contribute anywhere
from one to 85 percent of their salary to their plan account,
whereas MFS contributed an amount equal to 15 percent of
participants' salary to the Employer Plan.
participated in the Employer Plan until 2014, but asserts
claims on behalf of both Plans and a putative class comprised
of “[a]ll participants and beneficiaries of the [Plans]
at any time on or after July 7, 2011 . . . .” Compl.
¶¶ 8-9, 125. She alleges essentially that instead
of acting in the best interest of the Plans and their
participants, defendants used the Plans as an opportunity to
promote their own mutual fund business to participants'
detriment. MFS funds comprised “the vast
majority” - up to 98 percent - of the investment
options in both Plans since at least 2011. Compl.
¶¶ 24, 26, 67. Even the Plans' nonproprietary
funds are alleged to have benefited MFS in that the
alternatives, known as Russell Funds, were managed by various
subadvisors including MFS affiliates.
Plans used the same processes for selecting and monitoring
investments, and both used the same recordkeepers,
compensated the same way. Accordingly, plaintiff alleges that
“the two plans operated functionally as though they
were a single plan.” Compl. ¶ 24. Combined, the
Plans had $515, 246, 820 in assets as of the end of 2012. For
both Plans, MFS was a Plan sponsor and named fiduciary, and
had authority to appoint and remove members to the advisory
committees. All such members were MFS employees appointed by
the MFS Board of Directors. MFS acted during the relevant
period as investment manager for each of the proprietary
funds, in exchange for which it collected monthly fees from
Plan assets invested in proprietary funds; as such, it is a
“party in interest” under 29 U.S.C. §
1002(14). MFS then applied a portion of its monthly
management fees to pay the Plans' recordkeeper and to
compensate MFS Service Center, Inc.
delegated a portion of its fiduciary responsibilities for
investing Plan assets to the Investment Committee, which was
charged with maintaining and monitoring the Plans'
investments. MFS similarly delegated a portion of its
fiduciary responsibilities for administering Plan assets to
the Retirement Committee, which selected record keepers and
determined their compensation. During the relevant period,
the Investment Committee removed no MFS funds from the Plans,
though plaintiff alleges the funds contained many duplicative
investments. She complains as well of duplicative additions
of high-fee Russell funds “generally rejected by other
defined contribution plans” during the relevant period.
Compl. ¶ 74. Indeed, by the end of 2015, “the
Plans were the only two defined contribution plans (out of
over 3, 000 with more than $200 million in assets) to offer
any of the Russell funds included within the Plans at the
part to defendants' failure to remove expensive,
under-performing proprietary funds, plaintiff alleges the
Plans' expenses were significantly higher than those of
comparable retirement plans. Specifically, “estimated
total Plan costs for 2012 were approximately $4, 416, 791, or
0.86% of the more than $515 million in assets within the
Plans.” Compl. ¶ 79. By contrast, the median total
cost in 2012 for plans with between $500 million and $1
billion in assets was 0.45%; for plans in the $250-$500
million asset range, 0.47%; and for plans in the $100-$250
million range, 0.57%. For 2014, $5, 366, 667 in costs
represented 0.80% of the more than $670 million in combined
plan assets, whereas the median cost for plans of that size
was then 0.44%. Plaintiff thus alleges that “in 2012
the Plans were approximately 91% more expensive than the
median similarly sized plan, and in 2014 they were 82% more
expensive.” Compl. ¶ 80. Less expensive
nonproprietary alternatives - both actively and passively
managed - offered similar or better performance, but
defendants failed to use them because to do so would have
been contrary to their business interests.
further alleges that defendants failed to obtain the
lowest-cost share class of numerous mutual funds in the
Plans, even though lower-cost share classes are routinely
available to institutional investors with over $1 million in
assets and attendant increased bargaining power, and even
though more expensive share classes offer no additional
value. For example, the Committees retained institutional
shares of the MFS Growth and Value Funds with expense ratios
of 0.87% and 0.71% despite the availability of identical R5
shares with expense ratios of 0.78% and 0.60%. As a result,
MFS collected higher fees for the same services it would have
provided had the Plans owned the cheaper R5 shares of the
Growth Fund; the same was true of at least 38 other funds in
reflected in the Plans' high costs are excessive
recordkeeping fees. The cost of recordkeeping services
depends on the No. of participants in a plan, and plaintiff
estimates that a “normal range” for plans like
those at issue would have been $50-80 per participant. Compl.
¶ 98. Instead, defendants paid in excess of $500 in
recordkeeping fees per participant until September 2015, when
they changed providers.
factor contributing to high Plan costs was defendants'
failure to invest in non-mutual fund alternatives like
separate accounts and collective trusts, which carry
significantly lower fees, despite offering them to
shareholders in other plans.
in addition to failing to remove duplicative funds as alleged
above, defendants failed to monitor and remove poorly
performing funds. Plaintiff cites the Plans' money market
funds specifically, which returned 0.01% or less from 2011
through 2015 but featured expense ratios over 0.60%. In
contrast, stable value funds offer the same protection of
principal with reliably better returns. Defendants did offer
a stable value fund for a time, but liquidated it without
replacement in 2014 after years of underperformance.
sues defendants for breach of the fiduciary duties of loyalty
and prudence (Count I), failure to monitor fiduciaries (Count
II), prohibited transactions with a party in interest (Count
III), prohibited transactions with a fiduciary (Count IV),
and equitable restitution of ill-gotten proceeds (Count V).
She lacked knowledge of material facts necessary to
understand the alleged ERISA violations until she filed her
complaint, and continues to lack actual knowledge of the
specifics of defendants' decision-making processes.
Defendants move to dismiss. In addition to arguing that
plaintiff has failed to state a ...