Oracle Complaint Latest in a Parade of 401(k) Fee Suits

A new 401(k)-related lawsuit emerging this week in a Colorado district court will undoubtedly sound familiar—perhaps painfully so—to retirement plan industry professionals. 

A new lawsuit filed by Schlichter, Bogard and Denton against Oracle Corporation for alleged mismanagement of the company’s 401(k) plan clearly echoes many of the complaints filed by the firm (and others) in the past several years.

Oracle Corporation is accused of breaching its Employee Retirement Income Security Act-based (ERISA) fiduciary duties in the management of its employees’ 401(k) plan assets. Specifically, plaintiffs in Troudt vs. Oracle allege the Oracle Corporation 401(k) Savings and Investment Plan caused participants to pay recordkeeping and administrative fees to Fidelity that were “multiples of the market rate available for the same services.”

The text of the complaint suggests defendants “breached their fiduciary duties of loyalty and prudence and engaged in transactions expressly prohibited by ERISA … by failing to act solely in the interest of plan participants and failing to adequately monitor the investment options in, and service providers to, the plan.” Oracle is also accused of “preventing participants in the plan from discovering their breaches through a series of false and misleading communications to plan participants.”

Similar to related suits that have recently emerged, for example Bell v. Anthem or the new suits involving Empower and Reliance Trust Companythe plan sponsor here is accused of failing to leverage its tremendous bargaining power to “obtain high-quality investment management and administrative services at very low costs.” According to the plaintiffs, a plan the size of Oracle’s should not be lagging far behind its peer benchmarks on plan costs, fees, performance, etc.

Complaint documents suggest the Oracle plan held more than $12 billion in assets and had 65,732 participants as of 2015. According to the complaint, this makes the plan “one of the country’s largest 401(k) plans, in assets, larger than 99.99% of all 401(k) plans.”

Fidelity finds itself included in the complaint because, in accordance with 29 U.S.C. §1103(c), the plan document requires all plan assets to be held in trust by a trustee appointed by Oracle. “Oracle entered into a Trust Agreement with Fidelity Management Trust Company that was originally dated December 31, 1993, and most recently restated on February 1, 2003,” according to the complaint. “Fidelity Management Trust Company, Inc. provides recordkeeping and administrative services to the Plan as described in the 2003 Trust Agreement. Several Fidelity entities provide or have provided services to the Plan, including Management & Research Company, which is the investment adviser for Fidelity mutual funds.”

Because of the way the trust agreements are structured, Fidelity is described by the plaintiffs as “the sixth largest institutional holder of Oracle stock, owning over $2 billion shares. Thus, Fidelity has the influence of a large stockholder in light of its stock ownership.”

“Oracle has chosen and maintained funds from one of its largest shareholders, Fidelity, to be investment options in the Plan,” the complaint continues. “Oracle has also chosen Fidelity to provide recordkeeping services to the Plan. Because of these choices by Oracle, Fidelity has received, and continues to receive, millions of dollars of Plan participants’ retirement assets.”

In this respect the case has some similarities to Tussey vs. ABB, which was ultimately rejected for review by the Supreme Court last year. In that matter, the 8th U.S. Circuit Court of Appeals ultimately agreed with a district court finding that the ABB fiduciaries breached their duties to the plan by failing to diligently investigate Fidelity and monitor plan recordkeeping costs, but it agreed with Fidelity and ABB that the district court relied inappropriately on hindsight in its ruling that the switch from Vanguard Wellington funds to Fidelity Freedom funds violated their fiduciary duties under the Employee Retirement Income Security Act (ERISA). Fidelity was also found not liable for breaches concerning its use of “float” income in that case.

The full text of the new complaint Troudt vs. Oracle is here