Request Legal Help Now - Free
LAWSUITS NEWS & LEGAL INFORMATION

Fidelity 401k Fiduciary Lawsuits Consolidated in Massachusetts

. By

If Fidelity acted as a fiduciary, liability could be widespread

Boston, MASince the beginning of 2019, a collection of class action ERISA lawsuits has worked to expose a secret pay-to-play scheme that arguably benefited Fidelity Management and Research Company and related companies (“Fidelity”) at the expense of 401k retirement savers.

These lawsuits have now been consolidated as In re Fidelity ERISA Fee Litigation. Given Fidelity’s reach into the 401k market, these lawsuits could have always involved a large number of plaintiffs. That day is here, now.

The plaintiffs’ argument depends on showing that Fidelity acted as a fiduciary. Under ERISA, only fiduciaries have a duty to act in the sole interest of plan participants and beneficiaries and to disclose fees. Fidelity has not historically been treated in that way. Rather has been seen as a service provider that was overseen by plan administrators who shouldered the legal responsibility.

Plaintiffs claim that Fidelity’s fees to non-Fidelity funds reduced retirement savings



Fidelity offers retirement plan participants the opportunity to invest in non-Fidelity mutual funds through its FundsNetwork. Fidelity charged these third-party funds for the privilege of being listed on the FundsNetwork platform. Beginning in 2017, Fidelity began to require non-Fidelity funds to make additional payments if the revenue-sharing payments otherwise generated by Fidelity’s recordkeeping and related services fell below a certain pre-set level. It was a top-up. It had little to do with the services provided by Fidelity. The dispute is about these additional charges.

These charges increased the cost of investing in these mutual funds and thus decreased the amount of money that 401k plan participants would have on retirement. More importantly, Fidelity allegedly hid the existence of these payments from the 401k plans that were its clients and explicitly prohibited the outside mutual funds from disclosing the any information about the scheme.

With no way to know about the payments, 401k plan participants had no opportunity to switch investment funds. The legal harm is that they were denied the transparency guaranteed by ERISA.

Was Fidelity a fiduciary?



“Fiduciary duty” is ancient concept that has its origins in trust law. A person acting in a fiduciary capacity is held to a high standard of honesty and full disclosure in regard to the client and must not obtain a personal benefit at the expense of the client.

Under ERISA Section 3(21), a person (including a corporation) is a fiduciary to the extent that it:

• has or exercises any discretionary (decision-making) authority or control over the management or administration of the plan;
• has any discretionary authority over the management or disposition of the plan’s assets; or
• gives investment advice regarding plan assets for direct or indirect compensation or has authority to do so.

Traditionally, plan administrators hired experts, like record keepers, whom they supervised. In this situation, the fiduciary responsibility remained with the plan administrators. The record keeper had a legally enforceable contractual duty to the plan. It did not have independent legal duties of honesty or disclosure that passed through to plan participants.

Increasingly, however, sophisticated experts, like Fidelity, have taken on more and more of the discretionary functions traditionally performed by named fiduciaries, including management or disposition of plan assets. There is also the issue of indirect compensation, here.

If Fidelity exercised discretion with respect to the management of plan assets and got some indirect compensation, then it assumed the pass-through fiduciary responsibility and the legal risk that follows behind it. If Fidelity was a fiduciary, then it had the obligation to fully disclose the extra payments that were due when the revenue-sharing payments fell below certain level. That is the central issue of the consolidated lawsuits.

The fact that Fidelity apparently kept these payments secret from the 401k plans for which it provided services looks bad. The fact that the mutual fund giant prohibited non-Fidelity participants in the FundsNetwork platform from disclosing the payment arrangement looks worse.

Muddling the 401k fiduciary world



Many people who manage their 401k plan investments see themselves as relatively active investors. These kinds of plans are often marketed as Everyman’s chance to participate in the benefits of a rising stock market. This may cloud fiduciary responsibility issues in a financial environment that is already undergoing significant change.

Individuals investing for retirement outside of an ERISA plan should realize that investment advisors registered under the Investment Advisor Act of 1940 are subject to fiduciary rules that are similar to those that exist within ERISA plans. Some believe that the current administration is working to weaken those rules.

Investment brokers, who also give financial advice, are not covered by fiduciary rules, but a standard that requires them to evaluate only the suitability of an investment for a particular client. Many believe that this standard provides less protection for investors.

The variable and changing standards do not immediately affect ERISA plan fiduciaries, but they add to the ethical confusion that may tempt those who provide services and advice to retirement plans to err on the side of indiscretion, especially when their roles are legally ambiguous.

Resolving the issue of Fidelity’s fiduciary or non-fiduciary status could bring some clarity to ERISA plan participants as well as those who are investing for retirement outside the ERISA framework. In re Fidelity ERISA Fee Litigation is a juggernaut. It’s a big one and will grind along slowly through the court system. This is one to watch.

READ ABOUT EMPLOYEE STOCK OPTION LAWSUITS

Employee Stock Option Legal Help

If you or a loved one have suffered losses in this case, please click the link below and your complaint will be sent to an employment law lawyer who may evaluate your Employee Stock Option claim at no cost or obligation.

ADD YOUR COMMENT ON THIS STORY

Fields marked * are mandatory. Please read our comment guidelines before posting.

*Name:

Note: Your name will be published with your comment.

*Email Address:

Your email will only be used if a response is needed.
*Your Comment:

Are you the defendant or a subject matter expert on this topic with an opposing viewpoint? We'd love to hear your comments here as well, or if you'd like to contact us for an interview please submit your details here.


Click to learn more about LawyersandSettlements.com
Request Legal Help Now! - Free