Fidelity Settles Lawsuit with Own Employees Over 401(k) ERISA Allegations

Fidelity has  settled two lawsuits filed last year by its own employees over allegations that they violated ERISA in the administration of their own 401(k) plan by charging excessive fees and committing prohibited transactions. We extensively covered the allegations in our previous posts – Fidelity is Targeted Again and This Time Regarding Its Own In House Plan; Fidelity Files a Motion to Dismiss the Lawsuit Regarding Its Own In-House Plan; Case Against Fidelity Regarding In-house Plan Heats Up; and Fidelity is Sued Again Over In-House 401(k) Plan.

The motion for settlement filed in Bilewicz v. FMR LLC and in Yeaw v. FMR LLC and the accompanying settlement agreement provides for $12 million to be paid to the class and for the following affirmative relief to be taken:

  • The Plan will make available a wide selection of both Fidelity and non-Fidelity mutual funds.
  • The Plan will also continue to offer: (i) the Fidelity Freedom Funds – Class K as the Plan’s qualified default investment alternative; and (ii) Fidelity’s portfolio advisory service, Portfolio Advisory Services at Work (PAS-W). PAS-W will continue to be offered at no cost to participants.
  • Fidelity is increasing auto-enrollment for eligible employees from 3% to 7% of eligible compensation, and will default current participants who are currently deferring below 7% to 7% of eligible compensation. Fidelity will apply its match to those increased contributions.
  • The Plan shall provide that revenue sharing attributable to non-Fidelity mutual funds shall be credited to participants in the same way as revenue attributable to Fidelity mutual funds and collective trusts pursuant to the 8th amendment to the 2005 restatement of the Plan is credited to participants.This revision to the Plan shall remain in effect for at least three years.

The lawyers representing the Plaintiffs have been appointed as class counsel for the purposes of settlement and will be filing a motion for attorney’s fees at a later time. The amount they will be requesting was not disclosed in the settlement agreement. Each named plaintiff has asked for a specific request of $5,000 for their work in bringing the case. In exchange for the monetary payment and affirmative relief, the plaintiffs have agreed to an extensive release of claims related to the allegations in the complaint. However, the claims against Fidelity regarding float interest in In re Fidelity ERISA Float Litigation have specifically been carved out and that case will continue to move forward.

Our Thoughts

Fidelity’s settlement of this case is somewhat surprising as they have typically vigorously defended itself in other excessive fee litigation. On the other hand, no substantive decisions had yet been made in the case and the cost of litigating this case through summary judgment had their motion to dismiss been denied, would likely have been multiples of the $12 million paid to settle the case. For plan sponsors that have Fidelity, the affirmative relief should be of particular interest, as it may serve as a road map of what kind of services are considered best in class when provided by Fidelity (such as K share classes or offering funds from multiple families). Since this settlement did not cover the float litigation, we will continue to monitor it and provide updates.

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