Oracle Must Defend $40M Lawsuit Over 401(k) Fees

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

Oracle Corp. can’t escape a proposed class action challenging the way it manages its 401(k) plan ( Troudt v. Oracle Corp. , 2017 BL 90699, D. Colo., No. 1:16-cv-00175-REB-CBS, 3/22/17 ).

The California software company is accused of draining more than $40 million from its retirement plan through a bad deal with the plan’s record keeper, Fidelity Management Trust Co. A federal judge in Colorado refused to dismiss the case on March 22, citing a magistrate judge’s report recommending that the case move forward. Both judges determined that the parties’ dispute would be better resolved on a fuller factual record.

Lawsuits challenging 401(k) plan fees have had significant success in recent months. Judges have refused to dismiss proposed class actions against BB&T Corp., Allianz Asset Management of America, Putnam Investments LLC, Deutsche Bank, Franklin Resources Inc. and Edward D. Jones & Co.

In allowing the case against Oracle to proceed, the district judge said that the case was “extraordinarily close and exceptionally context-specific.”

The judge also gave a clue about how he viewed the challenge to Oracle’s revenue-sharing arrangement with Fidelity. Revenue sharing is a common practice in the 401(k) industry in which the entity that performs record-keeping functions for the plan—in this case, Fidelity—receives a portion of the fees charged to the plan’s investments. Critics of the practice say it allows record keepers to collect excessive fees that aren’t tied to the amount of work they perform.

The judge said he wasn’t “wholly convinced” that a lawsuit challenging revenue sharing must allege “some additional nefarious motive” on the part of the plan fiduciary. Oracle had argued that it had “no control” over whether the mutual funds in its plan engaged in the “perfectly lawful” practice of revenue sharing.

Judge Robert E. Blackburn of the U.S. District Court for the District of Colorado wrote the decision.

Schlichter Bogard & Denton LLP represents the Oracle plan participants. Morgan Lewis & Bockius and Brownstein Hyatt Farber Schreck represent Oracle.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

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

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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