Investment manager Massachusetts Financial Services Co. has reached a settlement of nearly $7 million in a lawsuit alleging the company enriched itself at the expense of employees' retirement savings by loading its 401(k) plans with costly, underperforming in-house funds.
The lawsuit, brought in July 2017, is one of several in recent years to claim that an asset manager breached its fiduciary duties under the Employee Retirement Income Security Act of 1974 because of self-dealing.
MFS denied all allegations of fault, liability, wrongdoing or damages, according to the settlement document, filed June 14 in Massachusetts District Court. Spokesman Daniel Flaherty said the company, an active investment manager, chose to settle the case to "avoid the distraction and cost of further litigation."
"We are pleased to put the matter behind us," Mr. Flaherty said.
The $6.875 million settlement requires court approval. MFS must also make changes to its retirement plans as part of the settlement, including using a nonproprietary investment instead of an in-house option as a default fund and hiring a third-party consultant to evaluate the plans' investment lineup and investment policy statement annually.
The amount MFS is paying to settle the case, Velazquez et al v. Massachusetts Financial Services Co. et al, ranks among the middle tier of those paid in similar lawsuits: Branch Banking & Trust Co. ($24 million), Deutsche Bank ($21.9 million), Franklin Templeton Investments ($14 million), Allianz ($12 million), Citigroup Inc. ($6.9 million), TIAA ($5 million), Waddell & Reed Financial Inc. ($5 million), Jackson National Life Insurance Co. ($4.5 million), Eaton Vance ($3.5 million) and New York Life Insurance Co. ($3 million).
A few lawsuits, such as one filed against American Century Investments, have been dismissed.