Fidelity Sued Over 401(k) Revenue Sharing Payments

The fiduciary breach suit alleged that Connecticut aircraft maintenance and parts manufacturer Columbia Air Services overpaid for the mutual fund services, because the third-party payments to Fidelity were included in the fees. Fidelity was hired as trustee.

“Since the mutual fund companies performed all of their duties for the Plan for the fees charged to the Plan less the amount of the kickbacks, the Plan overpaid for the services of the mutual funds at the expense of the Plan and its Participants and expenses should have been reduced by the amount of the kickbacks,” the suit asserts.

Columbia charged that Fidelity “directed” it to the investment options list available for its plan, despite that it had not been hired to manage the investment of the plan’s assets. Columbia argued that Fidelity still ended up getting a portion of the investment fees Columbia paid to the providers of the funds it chose even though Fidelity performed no additional services for the additional payments.

“Defendant failed to use the Kickbacks for the exclusive purpose of providing benefits to Participants and Beneficiaries and defraying the reasonable expenses of the Plan as set forth in the Plan and Service Agreement, but instead kept the Kickbacks for its own use,” Columbia claimed in the suit.

The latest case goes beyond previous excessive fee suits in the scope of the suggested class of potential plaintiffs Columbia would like included in the class action. Columbia asked U.S. District Judge Joseph L. Tauro of the U.S. District Court for the District of Massachusetts for class action status on behalf of all plan sponsors, plan administrators and trustees of defined contribution plans in which Fidelity now serves or has served as a trustee.

Fidelity most recently reaped a victory in June when a U.S. District Judge in Wisconsin threw out a revenue-sharing lawsuit brought by 401(k) plan participants of Deere & Co., who said its fees were excessive and that Fidelity failed to properly disclose them (See Deere and Fidelity Fee Lawsuit Thrown Out).

U.S. District Judge John Shabaz of the U.S. District Court for the Western District of Wisconsin said that no law or rule compelled Deere or Fidelity to disclose more fee information than they were already disclosing, that participants had to bear some of the responsibility for the Deere plan fees because of their investment choices, and that the safe harbor provisions would apply in the case.

The complaint by Columbia Air Services is Case 1:07-cv-11344-JLT.