The lawsuit (Yeaw vs. FMR LLC, Case number 14-10035) was filed under the Employee Retirement Income Security Act of 1974 (ERISA), and seeks recovery of losses and “disgorgement of unlawful fees and profits taken by Fidelity.”
According to the lawsuit, Fidelity and other mutual fund advisors have revenue-sharing agreements with client plans. Under those revenue-sharing agreements, the fund advisors (in this case, Fidelity Management & Research Company) pay a portion of revenue received from the mutual fund to the plan’s record-keeper (in this case, Fidelity Investments Institutional Operations Company and affiliates). Large plans, similar to those of Fidelity, the lawsuit argues, often receive a rebate for the revenue-sharing plan in situations where the amount given to the record-keeper greatly exceeds the costs of administering the plan. In other words, they agree to limit the fees to a certain amount and the excess then goes back to the plan.
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Plaintiffs allege that during the class time, the Plan should have paid around $3.3 million in record-keeping fees, but in fact paid an estimated $92 million.
“To add insult to injury, Fidelity and its managers reported that Fidelity was providing recordkeeping and administrative services for ‘free’,” the lawsuit states. The defendants were responsible for setting the terms of a relationship with service providers, but had an interest to act in the best interest of Plan participants and did not do so, the lawsuit claims.