A federal judge in New York dismissed a lawsuit by former and current participants in a Morgan Stanley 401(k) plan, who asserted that plan fiduciaries violated their duties under ERISA by offering a number of proprietary products and retaining some underperforming investment options.
"Contrary to plaintiffs' claims, ERISA does not require clairvoyance on the part of plan fiduciaries," wrote U.S. Circuit Judge Richard J. Sullivan, in his Monday opinion. "Nor does it countenance Monday-morning quarterbacking on the part of lawyers and plan participants who, with the benefit of hindsight, have zeroed in on the underperformance of certain investment options."
The judge said the participants failed to state a claim in the class-action suit, Patterson et al. vs. Morgan Stanley et al., which was filed in August 2016. The participants contended that the plan's offering of six proprietary Morgan Stanley mutual funds and a target-date series from BlackRock Inc. were poor performers that charged high fees.
"Nothing in ERISA requires Morgan Stanley to unilaterally offer plan participants a discounted fee as to the MS funds or to reduce the market-based fees of the MS funds to equal those charged to separate account clients simply because those funds are included in the ERISA plan," the judge wrote.
Responding to plaintiffs' arguments that certain investment options should have been removed, Mr. Sullivan wrote that ERISA's duty-of-prudence standard "does not compel ERISA fiduciaries to reflexively jettison investment options in favor of the prior year's top performers."
Responding to participants' claims that fiduciaries should have removed one of the funds in the BlackRock target-date series, the judge wrote that their "allegations of cumulative underperformance are insufficient to state a claim, since backward-looking contentions regarding overall underperformance are improperly grounded in hindsight."
The Morgan Stanley 401(k) Plan, New York, had assets of $10.2 billion as of Dec. 31, 2018, according to the latest Form 5500.
