A U.S. District Court judge in Boston has dismissed a lawsuit against two units of Fidelity Investments, which were accused by participants in a Fidelity client's retirement plan of violating fiduciary duties.
The plaintiffs are participants in the Delta Family Care Savings Plan, Atlanta, which hired Fidelity Management Trust Co. and Fidelity Investments Institutional Operations Company Inc. to provide certain trust and investment services.
Delta Air Lines Inc. was not a defendant. The plan had $8.12 billion in assets as of Dec. 31, 2015, according to its latest Form 5500.
U.S. District Court Judge Allison Burroughs dismissed the complaint Sept. 22, saying the plaintiffs had failed to state a claim in the case, Fleming et al. vs. Fidelity Management Trust Co. et al.
The 401(k) plan assets are invested through a master trust in which Delta is the sponsor and named fiduciary, while Fidelity Management Trust is the trustee.
The participants alleged that the defendants engaged in a "pay-to-play" relationship with Financial Engines Advisors, which provided advice services to plan members, according to the judge's analysis of the complaint,
Plaintiffs claimed the fee-sharing arrangement between Fidelity and Financial Engines — which wasn't named as a defendant — "is unrelated to any substantial services performed by defendants and artificially inflates the cost of investment advice by plan participants," according to the judge's ruling.
Participants also complained about a self-directed brokerage account offered by Fidelity, arguing that the account offered higher-cost shares, which violates ERISA by not choosing the best share classes for plan participants.
Participants sued in May 2016 and the defendants asked the judge in July 2016 to dismiss the claims. In her ruling to dismiss, Ms. Burroughs wrote that the participants "have failed to plausibly allege that defendants were exercising a fiduciary function (under ERISA) when they decided which securities to make available" in the brokerage account.
The judge dismissed the complaint involving the Fidelity-Financial Engines relationship, noting that other courts have ruled that service providers "are not acting in a fiduciary capacity when they negotiate with plan sponsors for their own compensation" as long as the agreement doesn't allow the service provider to determine or control the compensation.
The question of Financial Engines' fees is one for the plan sponsor, which was "free to decline to hire" the firm and/or fire Fidelity "to avoid an unfavorable fee-sharing arrangement," the judge wrote.