A participant in the Massachusetts Financial Services Company Defined Contribution Plan and the Massachusetts Financial Services Company MFSavings Retirement Plan has filed a lawsuit under the Employee Retirement Income Security Act (ERISA), alleging Massachusetts Financial Services Company (MFS), its retirement committee and retirement investment committee breached their fiduciary duties and engaged in prohibited transactions with respect to the plans in violation of ERISA.
The complaint says, “For financial service companies like MFS, the potential for imprudent and disloyal conduct is especially high, because the plan’s fiduciaries are in a position to benefit the company through the plan’s investment decisions by, for example, filling the plan with higher-cost proprietary investment products that a disinterested fiduciary would not choose.” The suit claims the defendants did just this, using the plans “as an opportunity to promote MFS’s mutual fund business and maximize profits at the expense of the plans and their participants.”
“We stand firmly behind the investment offerings in our employee retirement plans and our process in selecting these options,” Dan Flaherty, AVP and senior public relations manager at MFS, told PLANSPONSOR.
According to the complaint, the defendants 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 lawsuit contends the retention of these proprietary mutual funds has cost plan participants millions of dollars in excess fees. For example, it says, 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.
The lawsuit also accuses the defendants of failing 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 failed to monitor and control recordkeeping expenses. It says the defendants also failed to remove poorly performing investments from the plan.
The complaint not only calls out MFS proprietary funds, but also Russell LifePoints Mutual Funds offered in the plans for which an MFS affiliate served as a subadviser for numerous funds that comprised a significant percentage of the Russell funds.