Fidelity Facing Suit Regarding Float Income

February 11, 2013 ( – Participants from three 401(k) plans have filed a lawsuit against Fidelity Investments regarding its use of float income.

The participants allege Fidelity engaged in prohibited transactions and breached its fiduciary duty by using float income to pay itself trust and recordkeeping fees above and beyond the fees authorized in the trust agreements between the plans and Fidelity. The lawsuit claims Fidelity engaged in repeated self-dealing transactions and breaches of duty in violation of §406 and §404 of the Employee Retirement Income Security Act (ERISA) whenever it paid itself float income.   

In addition, the complaint says Fidelity engaged in prohibited transactions and breached its fiduciary duty by remitting float income into the mutual fund options selected by the plans’ participants without crediting the amount of that float income to the contributions made by the plans or the plans’ participants. “This had the effect of disseminating the value of the float income generated by the plans’ assets to all of the investors in the mutual fund and substantially diluting the value of the float income received by the plans and the plans’ participants”—also in violation of §406 and §404 of ERISA, according to the complaint.  

When plan assets are deposited on an interim basis in interest-bearing accounts before invested or disbursed as directed by the plans’ participants, the income earned on or derived from the assets while invested in such accounts is “float income.” (See “Be Careful Not to ‘Float’ into an ERISA Violation”)  

The lawsuit used the trial record from Tussey v. ABB (see “Employer to Pay for Failing to Monitor RK Costs”), which the complaint says reveals that Fidelity’s practice of misallocating float income did not just victimize the ABB PRISM Plans investor classes represented in that case, but harmed the entire population of Fidelity’s client retirement plans and investors to whom Fidelity owed fiduciary duties under ERISA.  

The lawsuit seeks to recover the float income that Fidelity “improperly took” from members of a proposed nationwide class.  

The complaint is here.