A U.S. District Court judge in Massachusetts has dismissed claims by participants of several defined contribution plans that Fidelity Investments, Boston, breached its fiduciary duties through its management of float income as the DC plans' record keeper.
The case, In Re Fidelity ERISA Float Litigation, depended on whether the judge agreed with the participants' argument that float income was a plan asset and whether Fidelity was a fiduciary under the terms of the Employee Retirement Income Security Act. Float income is money earned from interest-bearing accounts used temporarily by 401(k) plans before plan assets are disbursed when participants move assets among investment options.
In dismissing the case, Judge Denise Casper in Boston wrote that plaintiffs “have not plausibly alleged that float income is a plan asset,” adding “Fidelity is not an ERISA fiduciary as to float.”
Unless plaintiffs appeal Ms. Casper's granting Fidelity's motion to dismiss, the March 11 decision puts an end to a flurry of float-income lawsuits filed in Massachusetts in early 2013.
“We're deciding whether to appeal,” Gregory Porter, the lead attorney for the plaintiffs, said in an interview. Mr. Porter is a Washington-based partner at Bailey & Glasser LLP.
Four separate suits were filed by plan participants and one DC plan sponsor, Columbia Air Services Inc. Groton, Conn. Their complaints later were consolidated into one case because they raised similar arguments. The plaintiffs criticized Fidelity's management of float income as record keeper for 401(k) plans, including those of Columbia, Delta Airlines Inc., Bank of America and Hewlett-Packard Co.
Plaintiffs argued “Fidelity used float income — which plaintiffs allege belong to them to pay ... record keeping and administrative expenses,” Ms. Casper's ruling stated. “Plaintiffs allege that these expenses were outside the scope of the agreed-upon fees they would pay Fidelity,” making Fidelity's action a violation of its fiduciary duties.
When the original Massachusetts lawsuits were filed in 2013, the various plaintiffs based much of their arguments on a ruling in another case in another jurisdiction — a March 2012 decision by a U.S. District Court in Jefferson City, Mo.
The judge in that case, Tussey et al vs. ABB Inc. et al, made three rulings regarding claims by 401(k) plan participants of fiduciary breach, including the awarding of a $1.7 million judgment against Fidelity for its management of float income. The Massachusetts plaintiffs incorporated portions of the Missouri judge's decision in their individual lawsuits.
However, when the 8th Circuit Court of Appeals, St. Louis, reviewed the Tussey case, it reversed the float-income decision against Fidelity in March 2014.
The Massachusetts plaintiffs filed amended complaints in July and September 2014, citing other arguments to support their fiduciary-breach claims against Fidelity.
Attorneys for the plaintiffs and Fidelity participated in oral arguments on Jan. 21 before Ms. Casper on Fidelity's motion to dismiss the case. Plaintiffs have 30 days from the March 11 decision by Ms. Casper to appeal.