Morgan Stanley faces $1.5 billion lawsuit for mismanagement of employee retirement funds

Morgan Stanley faces $1.5 billion lawsuit for mismanagement of employee retirement funds

Morgan Stanley’s 401 (k) plan participants have filed a lawsuit claiming that the financial services major mismanaged the funds. The lawsuit claims that nearly 60,000 participants in Morgan Stanley’s fund faced significant financial loss as the fund underperformed compared to other funds in the similar segment.

The lawsuit filed in Manhattan federal court alleged that Morgan Stanley treated the plan as an opportunity to promote its own mutual fund. At the expense of its participants, the financial services major promoted its own plans when it could have invested the money in better performing funds.

401(k) and 403(b) plans have come under scrutiny across the nation. Participants have alleged that funds charge high fees and offer poor performance. Last month, a similar lawsuit was filed by participants in Franklin Templeton’s 401(k) plan.

The lawsuit alleges that Morgan Stanley used the funds to maximize its profits. The suit added that Morgan Stanley pushed nearly 60,000 employees to funds which reported poor performance and were associated with excessive fee for fund management.

The lawsuit involves Morgan Stanley’s 401(k) plan managing assets worth $8 billion.

Morgan Stanley’s small-cap fund performed worse compared to 99 percent of the funds in similar category during 2014. The small-cap fund performance improved slightly for 2015 (still performing worse compared to 95 percent of funds in the category).

The lawsuit also alleged that fee for Morgan Stanley was excessive. The suit made a comparison with fund managed by Wellington. As per the lawsuit, an investor with $1 million in Morgan Stanley fund made $335,485 less compared to Wellington fund, over a period of five years.

Charles Field, a lawyer for the lead plaintiff, said, “Morgan Stanley charges plan participants fees that are higher than those it charges outside investors with similar assets and investment strategy.”

Morgan Stanley hasn’t commented on the lawsuit and media reports.

The lawsuit filed in Manhattan is seeking $1.5 billion in damages.

Similar lawsuits have been filed against MIT, Yale University and New York University earlier this month.


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