Fidelity's Float Practices OK'd by First Circuit

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By Jacklyn Wille

July 13 — Fidelity's controversial practice of keeping “float” income earned off the 401(k) plans it manages doesn't violate federal benefits law, the U.S. Court of Appeals for the First Circuit ruled ( In re: Fidelity ERISA Float Litig. , 1st Cir., No. 15-1445, 7/13/16 ).

The appeals court on July 13 held that the undisclosed interest Fidelity Management Trust Co. generates from 401(k) plan disbursements held temporarily in overnight accounts—commonly referred to as “float”—doesn't qualify as a plan asset under the Employee Retirement Income Security Act. The First Circuit therefore joined the U.S. Court of Appeals for the Eighth Circuit in holding that participants in Fidelity-managed plans couldn't maintain fiduciary breach claims against the company.

This decision is a blow to the Department of Labor, which filed a brief asking the First Circuit to part ways with the Eighth and hold that this float income belonged to the 401(k) participants whose retirement savings helped generate it.

The First Circuit's opinion, written by former U.S. Supreme Court Justice David H. Souter, focused on the fact that the 401(k) participants suing Fidelity didn't allege that they would “be short so much as a penny” of any of their retirement savings on account of Fidelity's challenged practices.

In so ruling, the First Circuit relied on two of its recent decisions affirming the way life insurance companies distribute benefits through checkbook-like accounts.

Judges O. Rogeriee Thompson and William J. Kayatta Jr. joined the decision.

The 401(k) participants were variously represented by: Agrawal Evans LLP; Peiffer Rosca Abdullah & Carr LC; Levin Papantonio Thomas Mitchell Rafferty & Proctor PA; Frankowski Firm; Schneider Wallace Cottrell Konecky Wotkyns LLP; Bonnett Fairbourn Friedman & Balint PC; Fishman Haygood Phelps Walmsley Willis & Swanson; Bailey & Glasser LLP; Robinson & Cole LLP; Izard Nobel LLP; and Shapiro Haber & Urmy LLP.

Fidelity was represented by O'Melveny & Myers LLP and Goodwin Procter LLP.

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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