A U.S. District Court judge in Boston has dismissed an ERISA complaint by multiple plaintiffs against the parent company of Fidelity Investments, FMR LLC, and several affiliates, who argued that Fidelity's offering of competitors' mutual funds to participants and charging certain fees violated its fiduciary duties.
The plaintiffs contended that Fidelity was charging "secret fees" and offering a "kickback" to managers of competing firms whose investments are offered through the Fidelity FundsNetwork, an open architecture investment platform, according to court documents.
Fidelity petitioned the judge to dismiss the complaint, saying it isn't a fiduciary as defined by the Employee Retirement Income Security Act. U.S. District Judge Leo T. Sorkin agreed.
He dismissed the complaint "because this court requires at least one of the defendants be deemed a fiduciary, and because the court has held that plaintiffs have not plausibly alleged defendants' fiduciary status as to which they complain," in his Feb. 14 ruling.
The lawsuit, called In Re Fidelity ERISA Fee Litigation, was a consolidation in May of at least four lawsuits in which 14 participants or former participants from several defined contribution plans sued Fidelity making the same claims. None of the sponsors was named as a defendant.
The participants "failed plausibly to allege that defendants unilaterally control the terms of compensation they receive" from the sponsors, the judge wrote. "Without such control, defendants are not fiduciaries with respect to the compensation they receive from the plans."
The judge also rejected plaintiffs' assertion that Fidelity was a fiduciary because it controlled the investment menu in the FundsNetwork. "This theory also fails," he wrote. "The contracts make clear that it is the plan sponsors — not defendants — who select which investment options are made available to the plans' participants from the FundsNetwork."
