Fidelity Investments has consented to pay $12 million to settle two class action employee lawsuits. The plaintiffs contend that the retirement plan provider was self-dealing in the FMR LLC Profit Sharing Plan and making money at their expense by offering employees high-cost fund options and making them pay excessive fees.
Over 50,000 ex- and present employees are eligible to receive from the settlement. Fidelity is accused of providing just its own funds in the retirement plan for its workers, with certain investment options having little (if any) track record, while failing to use an impartial process when choosing the investment options.
As part of the agreement, Fidelity Investments will now give employees a choice of non-Fidelity and Fidelity mutual funds, increase auto-enrollment to 7%, and allow participants of non-Fidelity mutual funds to benefit from revenue sharing, just like the participants of Fidelity mutual funds and collective trusts. The company also will keep offering a default investment alternative, the Fidelity Freedom Funds-Class. The Portfolio Advisory Services at Work program will be provided for free.
Despite settling, the company is denying the allegations. A company spokesman said that Fidelity chose to resolve the case to avoid the burden of litigation costs.
In another 401(K) lawsuit, this one alleging fiduciary breach, the U.S. Supreme Court has agreed to weigh in. The complaint revolves around whether an employer violated its fiduciary obligation when selecting retail funds, rather than less costly institutional share classes. The lawsuit, Glenn Tibble v. Edison International, was filed seven years ago. It is one of the first group employee complaints against an employer alleging unreasonable 401(k) fees.
Edison is accused of offering approximately 40 mutual funds, including retail share class funds, even though the less costly institutional ones were available. The plaintiffs said the funds employed revenue sharing, which lets Edison pay less to its record keeper.
In 2010, the plaintiffs were granted $370,732 in damages over excessive fees in three of the funds. Both parties, however, have continued to fight over fees, with their dispute making its way to the 9th U.S. Circuit Court of Appeals and now to the nation’s highest court.
Now, the Supreme Court is asking U.S. Solicitor General Donald B. Verrilli Jr. to look at the fiduciary breach claim accusing Edison of selecting the more expensive retail share class mutual funds instead of the less costly options. Verrilli has said that even though the statute of limitations requires that a breach of fiduciary duty claim be brought within six years of the alleged breach, plan fiduciaries have a continuing duty beyond that time period to assess plan investments and get rid of the ones that are “imprudent.” The Supreme Court will decide whether to take the case.
Contact our 401K Fraud Attorneys at Shepherd Smith Edwards and Kantas, LTD LLP today.
Fidelity quietly settles employee lawsuits, Investment News, August 12, 2014
Glenn Tibble v. Edison International
More Blog Posts:
Supreme Court to Rule on Whether Employee Can Sue for 401K Losses, Stockbroker Fraud Lawyer, November 30, 2007
U.S. Supreme Court Decides That 401(k) Retirement Participants Can Sue for Losses Under ERISA, Stockbroker Fraud Lawyer, February 20, 2008