Fidelity, Shell Oil Company Face Latest ERISA Lawsuit

The latest Employee Retirement Income Security Act (ERISA) lawsuit, filed in the U.S. District Court for the Southern District of Texas’ Galveston Division, names as defendants the Shell Oil Company and various business units of Fidelity—along with a handful of Shell executives and named plan fiduciaries.

As is the case in many ERISA lawsuits, the plaintiffs filed their proposed class action on behalf of themselves and the Shell Provident Fund 401(k) Plan as a whole. Their suit echoes various fiduciary breach allegations that have been leveled in recent years against other large employers, including Trader Joe’s and Northrop Grumman.

In this case, plaintiffs allege that Shell failed to use the multi-billion dollar plan’s bargaining power to benefit participants and beneficiaries in the form of lower recordkeeping and asset management fees. They also allege that the Shell defendants allowed unreasonable expenses to be charged to participants for administration of the plan and managed account services, and that they “failed to even monitor numerous funds in the plan at all.”

“Even worse,” the lawsuit states, “Shell defendants allowed the Fidelity defendants to use plan participants’ highly confidential data, including Social Security numbers, financial assets, investment choices and years of investment history to aggressively market lucrative non-plan retail financial products and services, which enriched Fidelity defendants at the expense of participants’ retirement security.”

In its references to data-based cross selling, this latest lawsuit calls to mind various prior cases in which 401(k) or 403(b) plans, as part of fiduciary breach settlements, have agreed to entirely prohibit such cross-selling practices in the future. Plans have further agreed to include questions about providers’ broader use of participant data in the regular request for proposal (RFP) process that commonly unfolds as ERISA plans evaluate potential service providers. In such cases, however, service providers generally haven’t been named as defendants; plaintiffs simply target plan fiduciaries and/or the employer offering the 401(k).

Fidelity shared the following statement with PLANADVISER regarding the plaintiffs’ allegations: “The claims against Fidelity are not only legally unsupported, they are based on outright falsehoods about the nature of Fidelity’s business, and how Fidelity interacts with retirement plan sponsors and plan participants. As the leading provider of retirement plan services, Fidelity takes great pride in its transparency, and its commitment to working with plan sponsors concerning the nature and extent of Fidelity’s interactions with the participants in their plans. Fidelity simply does not engage in the type of unauthorized solicitation of plan participants described in the complaint. We fully intend to mount a strong defense against this frivolous lawsuit.”

In the text of the lawsuit, the plaintiffs allege that, since 2014, the Shell defendants have retained more than 300 designated investment options in the plan, “most of which are Fidelity’s proprietary mutual funds.”

“Shell defendants agreed to allow Fidelity to automatically put its mutual funds in the plan without any initial screening process by Shell defendants to determine whether the funds are prudent options for participants to invest their retirement assets,” the lawsuit states. “Shell defendants also retained these funds in the plan without conducting any ongoing monitoring of the funds in the fund window to ensure that they remain prudent. Assembling a haphazard lineup of over 300 options, most that were proprietary to Fidelity—and shifting to participants the burden to screen those options for prudence—reflects an imprudent investment selection and monitoring process.”

The plaintiffs go on to suggest that the Fidelity defendants “are unique in their sales practices in that Fidelity does not have its sales representatives make cold calls to persons who have no relationship with Fidelity, or who were not referred to Fidelity.”

“This is unlike other financial services firms that build their business through cold calls and door-to-door solicitations, without access to confidential plan participant data from retirement plans,” the lawsuit states. “Fidelity forwards confidential plan participant data to its local sales representatives when those participants experience triggering events, such as 401(k) distributable events and other events that Fidelity learns of in its role as the plan’s recordkeeper (e.g., adding a new beneficiary or changing marital status). Fidelity defendants utilize this practice on plan participants. For example … a Fidelity salesperson based in Seattle, Washington, repeatedly called [one plaintiff], who lives in Seattle, Washington, using his confidential plan participant data in an attempt to solicit the purchase of non-plan products.”

The plaintiffs argue the plan participant data that Fidelity receives from the plan is “among Fidelity’s most important and valuable assets.” They argue that Fidelity is using plan data to steer people toward products and services that are not in their best interest.

Shell has not yet responded to a request for comment about the litigation.