Morgan Stanley Sued Over Retirement Plan Deal With ING

* Bank accused of steering 401(k) business to win extra fees

* Morgan Stanley declines comment; ING denies wrongdoing

May 20 (Reuters) - Morgan Stanley has been sued by an Alabama medical laboratory that claims it steered retirement plan business to ING U.S. Inc and others in exchange for extra fees in an illegal "pay-to-play" scheme.

Skin Pathology Associates Inc. filed suit in federal court in Manhattan on May 16, accusing Morgan Stanley of violating federal laws governing retirement plans through its dealings with co-defendant ING Life Insurance and Annuity Co and other 401(k) service providers.

The Birmingham, Alabama-based laboratory, a customer of Morgan Stanley, is seeking class-action status on behalf of participants in potentially thousands of retirement plans overseen by Morgan Stanley, and retirement plans for which ING provides services.

Skin Pathology said it chose ING to handle record-keeping for its 401(k) plan beginning in July 2007 based on the bank's recommendation.

But it said Morgan Stanley was biased toward ING and other "alliance partners" because the bank would collect additional fees from these partners if they won contracts to provide retirement plan investment and record-keeping services.

Skin Pathology said these fees gave New York-based Morgan Stanley an improper incentive to make referrals, amounting to a conflict of interest that violated the federal Employee Retirement Income Security Act of 1974.

"The additional compensation is purely a 'pay-to-play' fee," the complaint said. "Because Morgan Stanley performs no additional work for the additional compensation, Morgan Stanley's receipt of additional compensation is a prohibited transaction under ERISA."

Skin Pathology seeks to recover the alleged improper fees, a halt to similar fees, and other unspecified damages.

Morgan Stanley spokesman James Wiggins declined to comment on the lawsuit. ING spokesman Joseph Loparco said ING, which has offices in Windsor, Connecticut, denied wrongdoing.

ING U.S., a provider of insurance, retirement and investment services, is majority-owned by Dutch financial group ING Groep NV

The case is Skin Pathology Associates Inc v. Morgan Stanley & Co et al, U.S. District Court, Southern District of New York, No. 13-03299.