Participants in two Massachusetts Financial Services Co. defined contribution plans reached an agreement with plan managers to settle allegations of ERISA fiduciary breaches, according to a filing with the U.S. District Court in Boston.
The June 14 preliminary agreement in the class-action lawsuit, which must be approved by the court, includes a payment of $6.9 million as well as several non-monetary changes affecting two defined contribution plans.
The preliminary agreement addresses allegations made in July 2017 by participants who said MFS managers and other MFS entities violated fiduciary duties by offering proprietary investment products that were more expensive than similar, independent products and by failing to negotiate "reasonable" record keeping fees.
The defendants "deny all allegations of fault, liability, wrongdoing or damages," the preliminary agreement said.
Some of the plaintiffs' initial complaints were dismissed by a U.S. District Court in September 2017, but the remaining allegations were allowed to proceed to trial in the case of Velazquez et al. vs. Massachusetts Financial Services Co. et al.
On May 9, the parties submitted their arguments to a mediator, which led to a proposed settlement, according to court documents.
As part of the proposed settlement, MFS has agreed to offer an index-based target-date fund series — not affiliated with MFS — as the plans' qualified default investment alternative and will hire a third-party consultant to provide an annual evaluation of the plans' investment lineups and investment policy statements.
"These changes are intended to address plaintiffs' allegations of improper self-dealing in this action," the preliminary agreement said.
Attorneys' fees representing no more than $1.7 million, plus litigation costs and settlement expenses, will come out of the $6.9 million payment. The participants were represented by three law firms – Nichols Kaster, Block & Leviton and MKLLC Law.
At year-end 2017, the Boston-based Massachusetts Financial Services Company Defined Contribution Plan had assets of $563.56 million and the MFSavings Retirement Plan had assets of $319.1 million, according to the latest Form 5500 filings.