Fidelity Investments will pay $28.5 million to settle a class-action lawsuit against the company and its fiduciaries alleging ERISA violations, according to a preliminary settlement document filed Thursday in U.S. District Court in Boston.
The defendants had been sued by former participants in the company's 401(k) plan who said the plan was filled with proprietary products and that fiduciaries didn't investigate whether there were similar investments that were cheaper and better-performing.
The parties reached a settlement on June 18, but announced the terms Thursday in the case of Moitoso et al. vs FMR LLC et al. FMR is the parent company of Fidelity. The settlement must be approved by the court. The case had been scheduled for trial on July 6.
The proposed settlement also requires "one or more plan fiduciaries" to monitor record-keeping fees and monitor the plan's investment options other than those available through a self-directed brokerage account.
"Fidelity believes that this lawsuit lacked merit and that its management of the plan complies fully with the Employee Retirement Income Security Act," Michael Aalto, a company spokesman wrote in an email. "Nonetheless, litigation imposes substantial costs and can be a distraction for Fidelity executives and employees," he added. "In order to avoid spending further resources on the lawsuit, and because Fidelity anticipates that approximately 80% of this settlement payment (after payment of attorneys' fees) will go into the Fidelity plan, Fidelity determined that it makes sense to settle the lawsuit at this time."
The plaintiffs also said the settlement puts a halt to further costs. "In the absence of a settlement, plaintiffs would have faced significant litigation risk," the settlement document said. "Continuing the litigation would have resulted in additional complex and costly proceedings, which would have further delayed relief to class members even if plaintiffs had ultimately prevailed."
The plaintiffs sued FMR, several Fidelity affiliates and fiduciaries in October 2018. FMR petitioned the court to dismiss the charges.
In March, U.S. District Judge William G. Young dismissed some claims but allowed others to proceed, writing that Fidelity "has breached its duty of prudence by failing to monitor its mutual fund investments and by failing to monitor record-keeping expenses."
Fidelity Retirement Savings Plan, Boston, had $16.1 billion in assets as of Dec. 31, 2018, according to the latest Form 5500.
