NEWS

Fidelity Sued Over 401(k) Fees, Investment Strategy

By Jacklyn Wille

Dec. 15 — A new lawsuit accuses Fidelity Management Trust Co. of charging excessive fees and utilizing an “unduly conservative” investment strategy in one of the funds it sells to 401(k) plans.

According to the complaint, Fidelity responded to losses incurred during the 2008 financial crisis by adopting an overly conservative investment strategy meant to appease the company’s “wrap providers”—which include AIG Financial Products, JP Morgan Chase Bank and State Street Bank—at the expense of the workers investing in one of Fidelity's stable value funds. Fidelity then attempted to conceal these missteps by reporting a misleading benchmark that made the fund look more competitive than it actually was, the complaint alleged.

Fidelity also charged excessive fees in connection with the fund and allowed its big-bank wrap providers to more than double their fees, the complaint alleged. As a result of the combination of these fees and the improper investment strategy, the fund's returns failed to outpace inflation in several years, according to the complaint.

“Effectively, Fidelity paid for the problems that its mismanagement created with the Wrap Providers by bailing out the Wrap Providers with plan participants' money,” the complaint contended.

A spokesman for Fidelity declined to comment on the suit, citing the company's general policy against commenting on ongoing litigation.

The lawsuit, which states violations of the Employee Retirement Income Security Act on behalf of “several thousands” of individual 401(k) investors, was filed Dec. 11 in the U.S. District Court for the District of Massachusetts by Zelle Hofmann Voelbel & Mason LLP and Schneider Wallace Cottrell Konecky Wotkyns LLP.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

Text of the complaint is at http://www.bloomberglaw.com/public/document/Ellis_et_al_v_Fidelity_Management_Trust_Company_Docket_No_115cv14.

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