Morgan Stanley Sued Over 401(k) Fees, Funds

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Jacklyn Wille

Aug. 19 — A new lawsuit accuses Morgan Stanley of forcing high-fee and poorly performing in-house investment funds on the employees in its 401(k) plan ( Patterson v. Morgan Stanley, S.D.N.Y., No. 1:16-cv-06568, complaint filed 8/19/16 ).

In a class action complaint filed Aug. 19, a former participant in Morgan Stanley’s $8 billion 401(k) plan contends that the company treated the plan as an opportunity to promote its own mutual fund business and maximize profits at the expense of its employees. Morgan Stanley is also accused of charging higher mutual fund fees to its own employees than it charges to outside investors.

The lawsuit seeks damages of $150 million on behalf of a proposed class of 60,000 plan participants.

Financial services companies that offer in-house funds in their 401(k) plans have been hit hard by litigation under the Employee Retirement Income Security Act. In the past year, lawsuits have been filed against American Century Services LLC, Deutsche Bank, New York Life Insurance Co. and Neuberger Berman Group LLC, among others.

In most of these lawsuits, a judge hasn’t yet evaluated the merits of the plan participants’ claims. Even so, the companies aren’t having much luck getting the claims dismissed quickly.

In April, a federal judge issued a short order declining to dismiss the claims against BB&T Corp. A similar order was entered in the case against Putnam Investments LLC. Neither order included a detailed explanation of the judge’s reasoning.

More recently, a federal judge in California declined to dismiss a lawsuit against Allianz Asset Management of America.

The lawsuit against Morgan Stanley was filed Aug. 19 in the U.S. District Court for the Southern District of New York by employment law firm Sanford Heisler LLP. Three days earlier, the firm made headlines by filing a lawsuit against Columbia University and its retirement plan, joining the weeklong litigation blitz on college retirement plans spearheaded by St. Louis firm Schlichter Bogard & Denton.

Charles Field, a partner at Sanford Heisler and counsel for the plan participant suing Morgan Stanley, said the company’s activities were a “classic violation” of a plan fiduciary’s duties under ERISA.

“An employer must act for the exclusive benefit of plan participants and not in the employer’s mercenary self-interest,” Field said in an Aug. 19 statement. “Here, Morgan Stanley charges plan participants fees that are higher than those it charges outside investors with similar assets and investment strategy. This is a classic violation of an ERISA trustee’s fiduciary duties.”

The Morgan Stanley lawsuit alleges that the company’s 401(k) plan experienced returns less favorable than that of competitor companies. The complaint contends that, excluding Morgan Stanley stock, the company’s 401(k) plan experienced a 31.6 percent return between 2011 and 2014. The 401(k) plan of Goldman Sachs & Co. had a return of about 32.5 percent during that time frame, the complaint alleges.

The lawsuit also takes aim at several Morgan Stanley investment options, particularly the Morgan Stanley Institutional Mid-Cap Growth Fund. This fund allegedly performed worse than nearly 90 percent of comparable funds during the time period in question.

Morgan Stanley didn’t immediately respond to Bloomberg BNA’s request for comments.

To contact the reporter on this story: Jacklyn Wille in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

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