Fidelity, Putnam 401(k) Investors Get Class Treatment

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 Jacklyn Wille

Dec. 14 — A pair of lawsuits accusing Fidelity Management Trust Co. and Putnam Investments LLC of 401(k) mismanagement were certified as class actions ( Brotherston v. Putnam Investments, LLC, D. Mass., No. 1:15-cv-13825, electronic notice of order granting class certification 12/8/16 ; Ellis v. Fidelity Mgmt. Tr. Co., D. Mass., No. 1:15-cv-14128, electronic notice of order granting class certification 12/8/16 ).

The class of investors suing Fidelity—which consented to class treatment—contains more than 222,000 individuals, according to court filings. Putnam, which opposed class certification, now faces claims from a 6,000-member class. Both class certification orders followed Dec. 8 hearings before Judge William G. Young of the U.S. District Court for the District of Massachusetts, who previously issued a joint order refusing to dismiss either case.

Both lawsuits raise claims of 401(k) mismanagement under the Employee Retirement Income Security Act, but they use different lines of attack.

The Fidelity lawsuit—which was filed by Barnes & Noble employees who invest in Fidelity funds—focuses on the investment strategy of Fidelity’s stable value fund. The employees allege that Fidelity responded to losses incurred during the 2008 financial crisis by adopting an overly conservative investment strategy meant to appease the company’s “wrap providers”—which include AIG Financial Products, JP Morgan Chase Bank and State Street Bank—at the expense of the fund’s investors.

While the claims against Fidelity are fairly novel, the claims against Putnam are increasingly common. As in many recent ERISA lawsuits, Putnam is accused of loading its own 401(k) plan with in-house mutual funds that earn high fees for the company.

In the past year, financial companies have been battered with legal challenges over the in-house funds in their 401(k) plans. Many of these lawsuits have seen early success, with courts refusing to dismiss cases against BB&T Corp., Allianz Asset Management of America and Deutsche Bank. Similar challenges are pending against Morgan Stanley, Wells Fargo & Co., American Century Services LLC, New York Life Insurance Co., and Neuberger Berman Group LLC.

Kai H. Richter, a partner with Nichols Kaster PLLP and counsel for the Putnam employees, told Bloomberg BNA he was pleased with the class certification ruling and was looking forward to litigating the case and moving forward. Other attorneys involved in the lawsuits didn’t respond to requests for comments.

Nichols Kaster PLLP and Block & Leviton LLP represent the Putnam workers. Skadden Arps Slate Meagher & Flom LLP represents Putnam.

The investors suing Fidelity are represented by Zelle LLP, Schneider Wallace Cottrell Konecky Wotkyns LLP and Righetti Glugoski PC. Fidelity is represented by Goodwin Procter LLP and O’Melveny & Myers LLP.

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

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