Fidelity Investments agreed to pay a class of its own employee 401(k) plan participants and beneficiaries $12 million to settle ERISA violation allegations of excessive fees and committing prohibited transactions with their retirement accounts.
The settlement, filed July 3 with the U.S. District Court for the District of Massachusetts, ended two lawsuits brought by employees: Bilewicz v. FMR LLC, cv-2013-10636 (D. Mass., March 19, 2013) and Yeaw v. FMR LLC, cv-2014-10035 (D. Mass., Jan. 7, 2014) (see story). In addition to the multimillion-dollar payment, the investment management firm agreed to take a series of actions for the participants, including:
- the plan will make a wide range of Fidelity and non-Fidelity mutual funds available;
- Fidelity will raise auto-enrollment contribution levels for eligible employees to 7 percent from 3 percent of compensation, and will default current participants now deferring less than 7 percent of their compensation up to a 7-percent level;
- the plan will continue to offer Portfolio Advisory Services at Work at no cost to participants; and
- the plan will credit to participants revenue sharing attributable to non-Fidelity mutual funds in the same way that revenue attributable to Fidelity funds and collective trusts is credited to participants. This change will remain in effect at least three years.
In exchange, the plaintiffs agreed to a lengthy release of claims made in the original complaints, and waived rights to future lawsuits in the matter. But claims against Fidelity alleging float interest earnings are carved out and will continue to be litigated as a separate case, In re Fidelity ERISA Float Litigation.
Some retirement plan administration and ERISA industry watchers said the move by Fidelity surprised them because the huge firm has vigorously defended itself in similar cases. However, the potential for an even larger settlement amount and escalating court expenses may have been a factor, said Thomas E. Clark Jr., an ERISA attorney with the Lowenbaum Partnership, who wrote extensively about the case on the firm’s Fiduciary Matters Blog, produced with FRA PlanTools.
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