DOL Rebukes Fidelity's Float Practices in Court Filings

Pension & Benefits Daily™ covers all major legislative, regulatory, legal, and industry developments in the area of employee benefits every business day, focusing on actions by Congress,...

By Jacklyn Wille

March 2 — Fidelity's controversial practice of keeping “float” income earned off the 401(k) plans it manages will go before the U.S. Court of Appeals for the First Circuit March 8, with the Department of Labor expected to argue against the financial services company.

In a brief filed with the court, the DOL argued that the Employee Retirement Income Security Act bars Fidelity from keeping undisclosed interest generated from plan disbursements held temporarily in overnight accounts—commonly referred to as “float.” According to the department, the district judge who let Fidelity off the hook in this case improperly focused on whether the float income qualified as a “plan asset” under ERISA.

In jumping into this proposed class action against Fidelity, the department seeks to defend its guidance on float income, issued in a 1993 advisory opinion, a follow-up letter and a 2002 field assistance bulletin. The district judge who ruled for Fidelity declined to follow these pronouncements, noting that they were more than a decade old and predated significant court rulings concerning float and related practices .

If the First Circuit takes the department's advice and reverses the district judge, it will create a circuit split on the proper framework for analyzing float. In 2014, the U.S. Court of Appeals for the Eighth Circuit upheld Fidelity's float practice after finding that float didn't qualify as a plan asset under ERISA (Tussey v. ABB, Inc., 746 F.3d 327, 58 EBC 1085 (8th Cir. 2014) ).

In the department's view, the proper question isn't whether float is a plan asset, but whether Fidelity unilaterally used the underlying 401(k) plan assets to generate income for itself without permission.

For its part, Fidelity is urging the First Circuit to find that float income isn't an ERISA plan asset and that, in any event, its handling of float income was consistent with ERISA.

Although Fidelity convinced both the Eighth Circuit and the district judge in this case to sign off on its float practices, the company was hit with a $1.7 million judgment by a Missouri-based federal judge who found in 2012 that float retention violated ERISA . The Eighth Circuit later overturned that ruling in Tussey, but not before it spawned a series of class actions that were ultimately consolidated in the instant lawsuit.

The First Circuit announced that it will hear oral arguments on March 8. The DOL has been given permission to participate in the arguments.

To contact the reporter on this story: Jacklyn Wille in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at