A federal court judge in Galveston, Texas, ruled for Fidelity Investments, rejecting a claim by plan participants that Fidelity's role as a record keeper for a Shell Oil Co. 401(k) plan made it a fiduciary because of its use of participant data.
"The plaintiffs allege that participant data are 'plan' assets under ERISA," thus making Fidelity a fiduciary and causing "profiting from the data a violation of its fiduciary duties," U.S. District Court Judge Jeffrey Vincent Brown wrote in an opinion Tuesday.
"Because the court has determined that participant data does not meet the statutory definition of 'plan assets,' the plaintiffs have failed to state claim" that Fidelity engaged in a prohibited transaction under ERISA, the judge wrote.
"As the court recognized, the claims against Fidelity were entirely unsupported in the law," Michael Aalto, a company spokesman said Wednesday in an email. "The plaintiffs' complaint also mischaracterized the nature of Fidelity's business, and how Fidelity interacts with retirement plan sponsors and plan participants."
Fidelity, its parent company, FMR LLC, and several affiliates were among the defendants in the case of Charles Harmon et al. vs. Shell Oil Co. et al., which was filed in January 2020.
Four participants argued that the Shell defendants violated their ERISA duties by allowing, among other things, "unreasonable" expenses and poor monitoring of investments as well as enabling Fidelity to cross-sell products and services that weren't part of the plan contract. They sought class action status for their complaints.
The judge cited several ERISA rules, explaining that "neither of the promulgated regulations either expressly or by any plain-language interpretation includes participant data as plan assets under ERISA."
He noted that several courts in different jurisdictions have reached the same conclusion. "The court finds no reason to depart from these holdings," he wrote. "The plaintiffs have failed to state a claim" of fiduciary duty.
The participant data-as-plan-asset argument has been used in several ERISA complaints by the St. Louis law firm of Schlichter Bogard & Denton LLP, which represents the plaintiffs in the Shell Oil case.
Led by founding and managing partner Jerome Schlichter, the firm has secured several ERISA lawsuit settlements in which sponsors agreed to refrain from allowing record keepers to market products and services to plan participants excluded from plan contracts unless participants request them.
Sponsors agreeing to these terms include Vanderbilt University, the University of Pennsylvania, Emory University and Johns Hopkins University — all of which run 403(b) plans.
Settlements don't create legal precedents, but lawyers who represent sponsors have worried that any court ruling allowing participant data to be considered a plan asset would open a Pandora's box of ERISA lawsuits.
In a separate opinion filed March 31, the judge dismissed participant-data allegations against the Shell defendants but rejected Shell's request to dismiss other allegations relating to claims of excessive fees, poor management of investment options and plan design.
The Shell Provident Fund, Houston, Texas, had assets of $11.74 billion as of Dec. 31, 2019, according to the latest Form 5500.
