Oracle Corp. 401(k) plan targeted for excessive fees

Throw another class-action suit on top of the rapidly growing pile of active 401(k) legal battles.
The Oracle Corp. 401(k) plan and fiduciaries to that plan are the latest to be targeted, with allegations of breach of fiduciary duty for excessive record-keeping fees paid through revenue sharing, the retention of poorly performing funds and imprudent monitoring of service providers.
It’s the latest 401(k) suit in a string of cases that have cropped up over the past few months, with 11 major class-action suits filed against plan sponsors or providers in the fourth quarter of 2015 alone.
It also marks another suit for Jerome Schlichter, founder and managing partner of Schlichter Bogard & Denton, the firm representing plaintiffs in the suit. InvestmentNews found that Mr. Schlichter and his firm have been running advertisements seeking out participants in specific 401(k) plans, such as Oracle’s, in order to find individuals to represent a class of plaintiffs. Great-West and KeyCorp are two other firms for which the firm is seeking participants.
Mr. Schlichter has been involved in several high-profile 401(k) fee suits over the past decade, and has won settlements totaling approximately $300 million. He won his largest last year, a $62 million settlement from Lockheed Martin.
The most recent suit, Troudt et al. v. Oracle Corp. et al., was filed Jan. 22 in the U.S. District Court for the District of Colorado. The Oracle Corp. plan has more than $11 billion in assets, fitting the profile of the jumbo plans usually targeted in these types of suits.
Plaintiffs allege fiduciaries breached their duties under the Employee Retirement Income Security Act of 1974 by paying excessive record-keeping fees to the plan provider, Fidelity Investments.
Fidelity has been the plan’s record keeper since 1993, and fiduciaries haven’t put the plan out for competitive bidding in 26 years, the complaint says. Conducting a periodic review would have allowed fiduciaries to attain a “substantially lower cost” for such services, the plaintiffs allege.
Also, the plaintiffs attack Oracle’s method of using revenue sharing to pay for record-keeping services, a common complaint among other suits brought by Mr. Schlichter. They say the “uncapped” asset-based fee, assessed through fund expense ratios, allowed fees to “exceed reasonable compensation” for services.
“From the beginning of 2009 to year-end 2014, the Plan’s assets more than tripled from $3.6 billion to over $11 billion. Because revenue sharing payments are asset-based and because Defendants chose to pay asset based recordkeeping fees, rather than a flat per-participant fee as the recordkeeping market readily does, Fidelity’s revenue skyrocketed even though the services it provided to the Plan remained the same,” according to the complaint.
The plaintiffs also claim fiduciaries imprudently selected and retained poorly performing funds. For example, the Artisan Small Cap Value Fund ranked “at the very bottom of its class” for four out of five years — 96th, 98th, 94th and 97th — before being removed in June 2015. That, the suit alleges, resulted in millions of dollars in losses to plan participants.
Oracle spokeswoman Deborah Hellinger declined to comment.