A U.S. District Court judge in Boston dismissed some claims but allowed other claims to stand against Fidelity Investments, opening the path for a trial based on an ERISA complaint by former participants of the company's 401(k) plan.
U.S. District Judge William G. Young issued an opinion March 27 granting parts of Fidelity's request to dismiss the complaint but agreeing with plaintiffs that they had met the legal requirements with other parts of the lawsuit, Moitoso et al. vs. FMR LLC et al.
The plaintiffs sued parent company FMR LLC, Fidelity affiliates and plan fiduciaries in October 2018 claiming they "failed to manage the plan in a prudent and loyal manner" in violation of ERISA guidelines. They amended their complaint three times.
They maintained that Fidelity's plan was filled with proprietary investments and that plan fiduciaries didn't investigate whether other investments would be less expensive and better performing. The plan's offering of many proprietary products represented a "failure to engage in a meaningful process of monitoring the plan's investment options to ensure that they remained prudent," their complaint said.
In seeking dismissal, Fidelity argued the plaintiffs filed the suit too late to meet ERISA guidelines, that the defendants didn't violate ERISA and that the lawsuit is relitigating another case that was settled in October 2014. In that settlement, Fidelity agreed to pay $12 million, make changes to its plan and admitted no wrongdoing. All named plaintiffs in this case also were members of the settlement class in the previous case, according to court documents.
The Moitoso case is unrelated to another lawsuit against Fidelity, called In Re Fidelity ERISA Fee Litigation, which was dismissed by a U.S. District Court in Boston on Feb. 14. This represented the consolidation of at least four lawsuits filed by participants or former participants from several defined contribution plans against Fidelity in its role as a record keeper. The claims were similar. No sponsor was named as a defendant.
The plaintiffs in the In Re Fidelity case alleged 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. The case was dismissed because U.S. District Judge Leo T. Sorkin said Fidelity wasn't a fiduciary.
In the Moitoso case, Mr. Young wrote that Fidelity "has breached its duty of prudence by failing to monitor its mutual fund investments and by failing to monitor record keeping expenses."
However, he rejected plaintiffs' argument that Fidelity fiduciaries violated their ERISA duties by failing to investigate alternatives to those mutual funds "because a prudent fiduciary would not be required to conduct those specific investigations."
Mr. Young also dismissed the allegation that Fidelity engaged in prohibited transactions. "At trial, the plaintiffs will bear the burden of proving the extent of any losses (due to the breach of duty to monitor), and Fidelity will bear the burden of proving that any losses to the Plan were not caused by the lack of monitoring," he wrote.
Fidelity Retirement Savings Plan, Boston, had $16.1 billion in assets as of Dec. 31, 2018, according to the latest Form 5500.
