Compliance

Fidelity Faces Float Income Suit from HP, United Employees

Participants filed the proposed class action lawsuit despite the fact that the firm has already been successful in defending practices related to ownership of float income. 

By John Manganaro editors@plansponsor.com | August 24, 2016
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A new proposed class action lawsuit filed in the U.S. District Court for the Northern District of California, San Jose Division, accuses Fidelity of improperly handling “float income” that plaintiffs feel should be considered a plan asset and thus returned to plan accounts.

It was just last month that the 1st U.S. Circuit Court of Appeals ruled that float income Fidelity retained in the process of making distributions to retirement plan participants is not a plan asset, so Fidelity did not violate its fiduciary duties under the Employee Retirement Income Security Act (ERISA) in keeping certain amounts of the float. That ruling has clearly not deterred plaintiffs standing behind this new complaint, which levels many of the same allegations against Fidelity—only this time in the interest of employees of HP Inc. and United Airlines.

The retirement plans in question are defined contribution (DC)-style plans known as the HP Plan and the UAL Ground Plan, qualified and defined under ERISA Section 3(34), 29 USC § 1003(34). Case documents show both plans are quite sizable: For calendar year 2012, the HP Plan received cash contributions of more than $1 billion, and approximately $20 million in participant loan repayments, as reported on the plan’s annual return on Form 5500. During 2012, the HP Plan made benefit payments and other payments to participants or beneficiaries, including direct rollovers, of $1.95 billion.

The UAL Ground Plan is invested through a master trust arrangement and all of the assets of the UAL Ground Plan, along with all the assets of the United Airlines Flight Attendant 401(k) Plan and the United Airlines Management and Administrative 401(k) Plan (referred to collectively in the lawsuit as the “UAL Plans”) are held in the United Airlines, Inc. 401(k) Plans Master Trust (the UAL Master Trust). For calendar year 2012, the UAL Master Trust received cash contributions of $255 million as reported on the UAL Plans’ Annual Returns on Form 5500. During 2012, all payments, rollovers and distributions clocked in at $314 million.

Fidelity is the target of the lawsuit because the Fidelity Management Trust Company (FMTC) serves as the Trustee for the UAL Master Trust and served as Trustee for the HP Plan during most of the relevant period until January 2, 2013, and Fidelity Investments Institutional Operations Company (FIIOC) still serves as the HP Plan’s recordkeeper. In short, these providers are accused of improperly keeping certain amounts of “float income” generated by plan assets as they were held in transit between accounts during the daily processing of the contributions and distributions already described.

NEXT: Examining the allegations 

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