Morgan Stanley and Edward Jones Are Sued in Separate 401(K) Lawsuits

An ex-participant in Morgan Stanley’s (MS) 401(k) plan is suing the financial firm. The plaintiff is alleging self-dealing and excessive retirement plan fees. Robert Patterson contends that the firm enriched itself at cost to employees. The case is Patterson v. Morgan Stanley et al. He is alleging breaching of fiduciary duty under ERISA. Patterson believes that plan participants sustained millions of dollars in losses in retirement funds from 1/11 through 4/14 because of the alleged breaches.

He is seeking class action status for case over the losses sustained and he wants the firm to pay $150M. The Morgan Stanley 401(k) Plan includes several Morgan Stanley mutual funds. According to the complaint these funds suffered “high relative fees” and/or “poor relative performance.” Although there were a number of non-proprietary investments included in the retirement plan, Patterson claims that they also performed poorly.

Meantime, Edwards Jones is also now a defendant in a 401(k) lawsuit. The plaintiff is a plan participant who claims that the firm caused employees to pay excessively high fees for record keeping and investment management services that purportedly resulted in the loss of millions of dollars in retirement savings. The proposed class-action lawsuit is McDonald v. Edward D. Jones & Co. L.P. et al.

According to the complaint, Mercer HR Services Inc.—the record keeper of the Edwards D. Jones & Co. Profit Sharing and Deferred Compensation Plan—was paid fees that were beyond reasonable. This purportedly caused the loss of $8M in aggregate retirement savings between 8/19/10 through now, which is the proposed class period.

The plaintiff claims that the plan offered participants expensive mutual fund share classes when there were less costly options involving identical funds. This allegedly cost participants $13M in excessive fees. The lawsuit is arguing that plan participants could have saved tens of millions of dollars if only the assets were in accounts that were managed separately and invested in collective investment trust funds.

Also, according to the complaint, Edward Jones has relationships with “preferred partners” and “partners.” Under these relationships, fund managers pay Edward Jones millions of dollar in revenue-sharing fees in exchange for certain benefits, such as contact with Edward Jones financial advisers, wider access to specific information about the firm’s business practices, and other benefits, including belonging Edward Jones’ 401(k) plan.

InvestmentNews reports that Mark Boyko, who is one of the plaintiff’s lawyers, said that the complaint is alleging that certain funds are in the retirement plan because they have preferred partner relationships with Edward Jones. At least 40 of the 53 investment options in Edward Jones’ 401(K) plan that is at issue are preferred partners or partners. 80% of the plan assets belong to mutual fund families that were named in the firm’s revenue-sharing disclosure from last year, including JPMorgan (JPM), Goldman Sachs (GS), Franklin Templeton, and others.

Edward Jones maintains that the allegations are false.

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Employees sue Morgan Stanley over 401(k) plans, CNN, August 19, 2016

Edward Jones faces lawsuit over 401(k) fees, St. Louis Business Journal, August 23, 2016

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