Another 401(k) plan sues Fidelity over 'kickbacks'

Employee for advertising agency Publicis claims the record keeper received undisclosed payments from other fund companies

Apr 8, 2019 @ 2:20 pm

By InvestmentNews

A participant in the Publicis 401(k) retirement plan has filed a class-action lawsuit against Fidelity Investments, charging that the record keeper received kickbacks from other fund companies whose funds are offered in the program.

The suit, filed in the U.S. District Court for the District of Massachusetts, charges that beginning on or about 2017, Fidelity began requiring that various fund companies and others offering investment products through the plans for which Fidelity provided record keeping "make secret payments to Fidelity for its own benefit in the guise of 'infrastructure' payments or so-called relationship-level fees in violation of the Employee Retirement Income Security Act."

More: 401(k) managed accounts becoming more diverse

The suit asks that the court grant the plaintiffs, who work for the U.S. arm of a French-based advertising and marketing firm, a judgment saying that Fidelity violated ERISA, and enjoining it from continuing the practices in question.

The suit also asks for a permanent injunction against Fidelity and disgorgement or restitution of all the payments and other compensation it charges Fidelity with receiving improperly — or the profits earned by Fidelity in connection with its receipt of those payments. It also asks for unspecified compensatory damages.

In response to similar suits recently filed, Fidelity spokesman Michael Aalto denied allegations of kickbacks, and said Fidelity "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 recently.

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.

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