Fidelity Gets Industry Support in Stable Value Fund Appeal

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By Jacklyn Wille

Fidelity Management Trust Co. is getting support from the financial industry in an appellate battle over the company’s stable value fund.

The Securities Industry and Financial Markets Association is urging a federal appeals court to reject a legal challenge to Fidelity’s stable value fund, which 401(k) investors accused of carrying excessive fees and using an unduly conservative investment strategy. In a proposed brief filed Nov. 10, SIFMA called this lawsuit—which the investors lost at the district court level—a “deeply problematic,” hindsight-based attack on an investment strategy that was selected after a “robust” fiduciary process ( Ellis v. Fidelity Mgmt. Tr. Co. , 1st Cir., No. 17-1693, motion for leave to file amicus brief 11/10/17 ).

Stable value funds, which are meant to be conservative, low-risk investment options that protect against interest rate volatility, have become a flash point in litigation under the Employee Retirement Income Security Act. Retirement plan sponsors, including Anthem Inc., Chevron Corp., and Insperity Inc., have been sued—unsuccessfully—for failing to include stable value funds in their investment lineups. Other lawsuits have targeted the companies that offer and manage stable value funds, with cases pending against MassMutual and Prudential.

The U.S. Court of Appeals for the First Circuit is poised to become the first appellate court to address an ERISA-based challenge to a financial company’s stable value fund investment strategy. In addition to the case against Fidelity, the First Circuit also is hearing an appeal over CVS Health Corp.'s stable value fund. SIFMA filed a brief making similar arguments in that case.

In both briefs, SIFMA argues that asset managers shouldn’t have to “follow the herd” to satisfy their fiduciary duties under ERISA. Investors shouldn’t be able to maintain lawsuits against asset managers that use prudent processes but nevertheless adopt investment strategies that are more conservative than others in the industry, SIFMA said.

Mayer Brown LLP represents SIFMA.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

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

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