Fidelity Investments Inc. has been sued by participants in its company 401(k) plan for alleged self-dealing that caused the firm to profit at the expense of its employees saving for retirement.
The lawsuit filed against Fidelity — Moitoso et al v. FMR LLC et al — is similar to a separate case filed against the firm about five years ago, which was settled for $12 million in 2014.
Plaintiffs claim that Fidelity breached its fiduciary duty by loading its $15 billion 401(k) plan with proprietary mutual funds, causing the firm and several affiliated entities to benefit financially. They claim Fidelity's conduct is "particularly inexcusable" given the firm should "know better" due to the prior lawsuit (Bilewicz v. FMR LLC ) and its position as the country's largest record keeper of defined-contribution plans.
In 2016, Fidelity had 234 proprietary mutual funds in its plan and zero non-proprietary funds, plaintiffs allege. That's an increase over 2014 and 2015 in the number of in-house funds, despite the aforementioned settlement, according to plaintiffs, who claim participants have incurred more than $100 million per year in losses compared to the average 401(k) plan due to high fund fees and poor performance.
Fidelity spokesman Michael Aalto said the company "strongly disputes the allegations in this complaint."
"We provide an excellent retirement plan to our employees, and we plan to vigorously defend against this lawsuit," he said.
Fidelity is just one of several financial services firms to be sued for self-dealing in their company 401(k) plans. Results of the cases to date have been somewhat mixed. Some judges have found in favor of defendants, including Capital Group, Wells Fargo & Co. and Putnam Investments. Several firms, such as Deutsche Bank, Allianz, Citigroup Inc., TIAA and New York Life Insurance Co., have settled.
The new Fidelity lawsuit was filed Oct. 10 in the U.S. District Court for the District of Massachusetts.