Fidelity sued again for 'illegal' 401(k) fees

A second lawsuit has been filed alleging that the largest retirement plan record keeper received undisclosed kickbacks from mutual fund companies

Mar 19, 2019 @ 2:12 pm

By Greg Iacurci

Fidelity Investments has been sued by 401(k) participants from three different retirement plans who allege the firm charged an "illegal and undisclosed" fee to certain business partners, resulting in higher costs and reduced retirement savings for investors.

The allegations are similar to those in a separate lawsuit filed last month by a 401(k) participant, sparking investigations by the Labor Department and Massachusetts' Secretary of the Commonwealth, William Galvin, into the Fidelity fee and its disclosure of them.

They also come at a particularly litigious time in the retirement market, which has seen an increase over the past few years in the number of lawsuits filed against plan sponsors and service providers.

The latest Fidelity lawsuit — Gina Summers et al v. FMR LLC et al — claims that Fidelity, since 2016, has charged investment companies a "substantial" fee as a condition of offering their investment products to 401(k) investors.

Plaintiffs claims the fee, which Fidelity characterizes as an "infrastructure fee," increased fund expenses and wasn't disclosed to 401(k) clients. That represents a breach of the Employee Retirement Income Security Act of 1974, which requires disclosure to plan sponsors of such marketing and distribution fees, according to the lawsuit, filed March 18 in Massachusetts district court.

Fidelity spokesman Michael Aalto said the company denies the allegations and intends to defend itself "vigorously."

"Fidelity fully complies with all disclosure requirements in connection with the fees that it charges, and any assertion to the contrary is not only misleading, but simply false," Mr. Aalto said.

He also defended Fidelity's practice of charging an infrastructure fee to fund firms, saying the systems and processes required for record keeping, trading and settlement, communications, and support for customers over the phone and online is costly to maintain. The fee, Mr. Aalto said, is not charged to plan sponsors or participants.

The three plaintiffs in the case are Gina Summers, a participant in the Rock Holdings & Associated Companies 401(k) Savings Plan; Cynthia Eddy, a participant in the Cadence Health Matched Savings Plan; and Kayla Jones, the Blue Shield of California Tax Deferred Salary Investment Plan.

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