Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
Fidelity Management Trust Co. and a subsidiary defeated a lawsuit by participants in Delta Air Lines Inc.'s retirement plan challenging alleged high-cost investment options and certain financial advisory fees ( Fleming v. Fid. Mgmt. Tr. Co. , 2017 BL 336561, D. Mass., No. 1:16-cv-10918-ADB, 9/22/17 ).
The participants failed to show that Fidelity exercised a fiduciary function over which share classes would be available to them through the brokerage account that would give rise to liability under the Employee Retirement Income Security Act, Judge Allison D. Burroughs of the U.S. District Court for the District of Massachusetts held Sept. 22. The plan documents show that once Delta chose to include a brokerage account, Fidelity was bound to follow the participants’ investment instructions and exercised no discretion or authority with respect to which shares they elected to buy, Burroughs said.
The participants’ claim that Fidelity breached its fiduciary duties by selecting and hiring Financial Engines—an online financial advice provider commonly known as a robo-adviser—also fails, Burroughs wrote. The allegations were premised on the notion that Fidelity, rather than the plan sponsor Delta, hired and selected Financial Engines, but the plan’s language contradicts this premise, Burroughs concluded, granting Fidelity’s motion to dismiss.
The decision is the latest defeat for investors who last year started challenging the fee arrangements between 401(k) providers and Financial Engines. Earlier this year, a federal judge in New York dismissed a similar lawsuit against Voya Financial Inc. Other providers, including Xerox HR Solutions LLC and Aon Hewitt Financial Advisors LLC, were also accused of collecting fees from participants in exchange for services that are actually performed by Financial Engines.
Northrop Grumman Corp. is also defending a lawsuit by 401(k) plan participants challenging the fee arrangement between Financial Engines and Aon Hewitt. In January, a federal judge dismissed this claim because the participants who filed the lawsuit failed to allege that they personally paid for Financial Engines’ services.
The dismissals of the Voya and Fidelity lawsuits follow the rationale of recent appellate court decisions declining to impose fiduciary status on 401(k) service providers, including American United Life Insurance Co. and John Hancock.
Zelle LLP, Berger & Montague PC, and Schneider Wallace Cottrell Konecky LLP represent the participants. Skadden Arps Slate Meagher & Flom LLP and Goodwin Procter LLP represent Fidelity.
To contact the reporter on this story: Carmen Castro-Pagan in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Jo-el J. Meyer at email@example.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)