Compliance

Judge Denies Oracle’s Motion to Dismiss 401(k) Fee Lawsuit

A magistrate judge ultimately found plaintiffs in the case have met their pleading obligations.

By Rebecca Moore editors@plansponsor.com | February 22, 2017
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A federal magistrate judge has recommended Oracle Corporation 401(k) Committee’s motion to dismiss a lawsuit regarding excessive plan fees be denied.

In the lawsuit filed in January, plaintiffs in Troudt vs. Oracle allege the Oracle Corporation 401(k) Savings and Investment Plan caused participants to pay recordkeeping and administrative fees to Fidelity that were “multiples of the market rate available for the same services.”

In addition, the complaint says because of the way the trust agreements with Fidelity are structured, Fidelity is described by the plaintiffs as “the sixth largest institutional holder of Oracle stock, owning over $2 billion shares. Thus, Fidelity has the influence of a large stockholder in light of its stock ownership.” The complaint continues, “Oracle has chosen and maintained funds from one of its largest shareholders, Fidelity, to be investment options in the Plan.”

In moving to dismiss, the Oracle defendants insist that the plaintiffs’ first claim for excessive fees and revenue-sharing fails because revenue-sharing is “perfectly legal” and because “nothing in ERISA [Employee Retirement Income Security Act] requires fiduciaries to solicit bids [for record keeping services]” through a competitive process. Defendants further contend that the first claim rests on nothing more than implausible conclusory allegations. The Oracle defendants also argue that claims by plaintiffs are “predicated entirely, and impermissibly, on hindsight;” “do not allege Defendants selected [the allegedly underperforming funds] for impermissible reasons;” and are “devoid of any supporting factual allegations sufficient to raise a plausible inference of misconduct.”

U.S. Magistrate Judge Craig B. Shaffer of the U.S. District Court for the District of Colorado noted in his opinion that the law firms of the parties in the case refer to other cases in which they prevailed, but “Tenth Circuit case law, however, does not figure prominently in either party’s arguments.” Shaffer said his own research has not found any controlling Tenth Circuit ERISA precedents on point. “At best, each side is relying on non-binding authority that it believes, from its own particular perspective, is enlightening,” he wrote.

NEXT: Specific facts are not necessary

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