Fidelity Faces ERISA Lawsuit Over 401(k)Brokerage Window

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

May 23 —A proposed class action accuses Fidelity Management Trust Co. of breaching its ERISA fiduciary duties for allegedly receiving unreasonable compensation through its brokerage window feature and a kickback scheme with an investment advice company.

According to the complaint, filed May 20, Fidelity selected mutual funds with higher expense ratios for the plan brokerage window that allowed the investment firm to rake “significant amounts” in revenue-sharing payments in violation of the Employee Retirement Income Security Act.

The allegations in the complaint are without merit and Fidelity will defend against them vigorously, Stephen Austin, a spokesman for Fidelity, told Bloomberg BNA May 23.

The lawsuit was filed in the U.S. District Court for the District of Massachusetts by participants in the Delta Air Lines Inc. retirement plan. According to the complaint, as of 2014 the plan had approximately $7.5 billion in assets, of which more than $2.8 billion where invested through Fidelity's brokerage window—BrokerageLink.

By selecting mutual funds with higher expense rations, Fidelity has exercised its discretionary authority over plan assets in a manner designed to increase its compensation at the expense of participants, the complaint alleges. The participants have paid Fidelity “enormous fees” simply for obtaining access to mutual funds that were already established on Fidelity's platform, the complaint says.

Participants also allege that Fidelity earned unreasonable compensation by engaging in a kickback scheme with Financial Engines Advisors, LLC for providing investment advice services. In order to be included as the investment advice service provider on Fidelity's platform, Financial Engines allegedly agreed to pay—and still pays—Fidelity a significant percentage of the fees it collects from 401(k) participants.

These fees weren't being paid for any substantial service being provided by Fidelity to Financial Engines or to participants, the complaint says. Moreover, the complaint alleges that Fidelity was “doing nothing more than providing an electronic mechanism for implementing instructions the participants could implement on their own.”

Zelle, LLP represents the participants.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at

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

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