Velazquez v. Mass. Fin. Servs. Co.
320 F. Supp. 3d 252
D.D.C.2018Background
- Plaintiff, a former MFS employee, sued on behalf of participants in two MFS retirement plans (employee-funded and employer-funded) alleging ERISA violations based on plan management and investment choices.
- MFS-selected investment menus were heavily weighted in proprietary MFS funds (up to 98%) and included high‑fee or duplicative Russell funds; MFS acted as investment manager and paid recordkeeper compensation from fund management fees.
- Plaintiff alleges excessive overall plan costs and recordkeeping fees compared to similarly sized plans, failure to use lower‑cost share classes, failure to offer lower‑cost separate accounts/collective trusts, and retention of poor performers (e.g., money market funds).
- Claims: breach of fiduciary duty (loyalty and prudence), failure to monitor, prohibited transactions (party‑in‑interest/self‑dealing), and equitable restitution.
- Defendants moved to dismiss arguing lack of standing for parts of the putative class, time‑bar, and that certain transactions are exempt or not subject to ERISA’s plan‑asset rules.
- Court denied dismissal as to breach, monitoring, and prohibited‑transaction (investment in affiliated funds) claims; allowed dismissal as to plan‑asset theory of self‑dealing fees and equitable restitution.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to sue on behalf of plans/ funds plaintiff did not hold | Injury from defendants' management practices affects plaintiff and class; she need not have invested in every fund | Plaintiff lacks standing for plans/periods in which she did not participate | Standing adequate at pleading stage; motion denied on this ground |
| Statute of limitations (29 U.S.C. § 1113) | Plaintiff lacked actual knowledge of material comparative facts (alternate funds, costs, share classes), so 3‑year accrual doesn't apply | Plan disclosures put participants on notice; claims are time‑barred | Allegation of lack of actual knowledge accepted at pleading stage; not time‑barred |
| Breach of fiduciary duty / failure to monitor (29 U.S.C. § 1104, § 1109) | Defendants favored proprietary funds, retained higher‑cost share classes, paid excessive recordkeeping; self‑dealing motive rendered process imprudent | Offering many funds and some low‑fee options defeats imprudence claim; no requirement to offer absolute cheapest funds | Complaint plausibly alleges conflicted process and imprudence; Counts I and II survive dismissal |
| Prohibited transactions & equitable relief (29 U.S.C. § 1106; § 1132(a)(3)) | Use of affiliated funds, failure to offer same terms as other investors, and payments to MFS affiliates constituted prohibited transactions and warrant disgorgement | PTE 77‑3 exempts affiliated fund investments; management fees are not plan assets and disgorgement under § 1132(a)(3) improper without traceable property or scienter | PTE 77‑3 plausibly inapplicable based on pleaded facts; Count III survives. But First Circuit precedent forecloses plan‑asset theory for management fees and equitable disgorgement claim dismissed |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (establishes plausibility standard for pleadings)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading must state a plausible claim)
- Harris Trust & Sav. Bank v. Salomon Smith Barney, 530 U.S. 238 (§ 1106 bars certain loyaly‑breaching transactions)
- In re Fidelity ERISA Float Litig., 829 F.3d 55 (1st Cir.) (management fees not transformed into plan assets)
- Barchock v. CVS Health Corp., 886 F.3d 43 (1st Cir.) (prudence is process‑based inquiry)
- Tibble v. Edison International, 135 S. Ct. 1823 (ERISA fiduciary must monitor and remove imprudent investments)