On January 7, 2014, FMR LLC or Fidelity Investments, was sued again by participants of its in-house 401(k) profit sharing plan. Previously, 29 participants had sued Fidelity in the Bilewicz v. FMR LLC matter filed in April 2013. (See previous posts here, here, and here)
The plaintiffs here generally allege that the fiduciaries to the Fidelity in-house plan violated ERISA sections 404 and 406 because Fidelity failed to rebate back the revenue sharing it collected from the all Fidelity mutual fund lineup in the plan beyond what would have been reasonable and permitted.
The plaintiffs claim the plan should have negotiated a direct recordkeeping arrangement with Fidelty, like other large plans do. They claim that all the way back to 2007, a reasonable per head fee would have been $20-$27. Instead, they claim that Fidelity was collecting approximately $335 per head through the revenue sharing from the plan.
The plaintiffs also allege that Fidelity was not permitted to charge its plan anything but its direct costs in providing recordkeeping services to its plan under 29 C.F.R. §2550.408b-2(e). Thus, the most Fidelity should have charged was about $10 per participant. Plaintiffs allege that at no time did Fidelity rebate back any of this difference to the plan. They allege the total damages to be approximately $88 million.
In support of their allegations, the plaintiffs also claim that Fidelity failed to disclose these practices to the plan participants and may have even reported inaccurate information on the plan’s Form 5500. See paragraph 70 of the complaint.
Fidelity has not yet responded to the lawsuit. We will continue to report on any additional developments.