Allegedly, participants in the tech giant’s 401(k) plan, which held more than $12 billion in assets at the end of 2014, paid recordkeeping and administrative fees that were “multiples of the market rate for the same services,” according to a complaint filed in U.S. District Court for the District of Colorado.
Plan fiduciaries also engaged in transactions “expressly” prohibited by the Employee Retirement Income Security Act, according to court documents.
A call to an Oracle representative was not returned before going to press.
The claim says Fidelity, the plan’s service provider, received $33.4 million in recordkeeping fees between 2009 and 2013.
But in actuality, those numbers inaccurately reflect Fidelity’s true compensation.
That’s because Oracle allegedly failed to disclose the amount of assets held in “many of the funds” in the plan’s Form 5500 filings. Fidelity’s compensation was based on a percentage of fund assets.
“The precise amount of compensation paid to Fidelity by the Plan cannot be determined because the Defendants have not disclosed it, as is required by the Department of Labor,” according to language in the complaint.
“Most” of the funds offered in the plan have at some point paid undisclosed revenue sharing payments to Fidelity, including the service provider’s proprietary funds offered to participants, allege plaintiffs’ attorneys.
“As much as 50 percent of the asset-based expense ratio of Fidelity equity mutual funds and 90 percent of the asset-based expense ratio of Fidelity money-market funds are allocated to the Fidelity entity that provides Plan recordkeeping or other administrative services,” the complaint says.
A footnote in the complaint shows that Fidelity returned $5 million in revenue-sharing payments to the plan in 2013.
Upwards of 60,000 participants were invested in the plan. A reasonable level of recordkeeping costs should have been $25 per participant, argue plaintiffs’ attorneys.
But based on what information was disclosed in Form 5500 filings, the plan paid between $68 and $140 per participant between 2009 and 2013.
Excessive recordkeeping fees resulted in more than $40 million in losses to the plan, the complaint says.
Moreover, fiduciaries provided at least three imprudent investment options, resulting in “tens of millions of dollars” of further losses the plan.
One fund, The Artisan Small Cap Value Fund, ranked at the bottom of its peer class for four of the five years it was offered to participants.
Another, the PIMCO Inflation Response Multi-Asset Fund, was added without an adequate performance history. Plaintiffs’ attorneys claim a prudent fiduciary would require at least a three-year performance history for any investment option.
Similarly, the TCM Small-Mid Cap Growth fund, which was created in June 2007, was added to the investment lineup two years after its inception.
The suit lists four formal counts of fiduciary breach against Oracle, and is seeking to certify a class of all participants in its 401(k) plan from January 1, 2009 up until the date of judgment, or more than 30,000 participants.
Fidelity has served as recordkeeper to the plan since 1993. The suit does not name Fidelity as a defendant, but notes that the investment firm owns more than $2 billion worth of Oracle shares, making it the sixth largest institutional owner of the company’s stock.
According to BrightScope, the Oracle plan is among the top 15 percent of plans with the lowest fees. The investment menu is comprised of 34 options. Two Vanguard funds are among the top three funds in the plan, based on allocation of plan assets.
Plaintiffs are represented by Schlichter, Bogard and Denton, the St. Louis-based law firm that has served as counsel in 15 other 401(k) claims brought under ERISA.