This looks bad: Fidelity settles retirement plan suit for $12M
One might assume that a leading retirement plan provider would operate an impeccable retirement program for its employees. In this case, that assumption would be mistaken.
Fidelity Investments, the world’s largest retirement plan provider, just agreed to settle two class-action lawsuits initiated by its own employees.
In total, Fidelity will shell out $12 million to clean up both legal messes, which didn’t paint the investment giant in the most flattering light.
In one suit, Bilewicz v. FMR, participants in Fidelity’s own employer-sponsored retirement plan claimed the plan was dominated by high-cost funds. In addition, the suit alleges the plan invested almost exclusively in Fidelity’s own funds.
The second suit, Yeaw v. FMR, alleges the company failed to recapture excess revenue-sharing money held to cover recordkeeping expenses. It claims the recordkeeping fees the company’s retirement plan paid into Fidelity’s own mutual fund lineup far exceeded what was reasonable.
Under the Employee Retirement Income Security Act (ERISA), retirement plan sponsors have a fiduciary duty to ensure its plan fees are reasonable. Both lawsuits allege that Fidelity violated its fiduciary duties under ERISA.
More than 50,000 current and former employees are poised to get a cut of the settlement.
In addition the $12 million, Fidelity has agreed to make a wider selection of its own funds, as well as non-Fidelity funds, available to participants in its 401(k).
Plus, participants will be able to use the company’s Portfolio Advisory Services free of charge.
Despite agreeing to the payout, Fidelity claims the lawsuits were completely without merit.
And by settling now, the company’s likely saving itself millions in litigation expenses, according to legal analysts.
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