Fidelity Axes Suit Over High-Cost Investments, Robo-Adviser Fees

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Carmen Castro-Pagan

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 ccastro-pagan@bna.com

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

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