Fidelity 401(k) Lawsuit Filed in Federal Court

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A former employee of Fidelity Investments has filed a class action lawsuit in Boston federal court against Fidelity Investments according to Bailey & Glasser, LLP; Levin, Papantonio, Thomas, Mitchell, Rafferty & Proctor; Schneider, Wallace, Cottrell, Konecky, LLP; and Fishman, Haygood, Phelps, Walmsley, Willis & Swanson.

Lori Bilewicz, a former employee of Fidelity Investments, has filed a class action lawsuit (Case No. 13-10636) in Boston federal court against Fidelity Investments (also known as FMR LLC) asserting that Fidelity committed numerous violations of the Employee Retirement Income Security Act (“ERISA”).

Fidelity manages a 401(k) retirement plan for its employees. Fidelity in that role has a duty to select investments for its employee 401(k) plan with diligence and care and solely for the benefit of its employees. Instead, Bilewicz claims in the complaint that Fidelity acted in its own interest in managing its employees’ retirement funds to increase its earnings. Among other things, every single investment fund chosen by Fidelity for its employees’ retirement plan was a Fidelity fund that earned fees for Fidelity. According to the complaint, Fidelity always chose its own funds for its employees’ retirement plan even when those funds had virtually no performance history, which is a violation of fundamental retirement plan management standards. According to the complaint, by choosing newly-minted Fidelity funds and maintaining poor-performing Fidelity funds as investments in its employees’ retirement plan, Fidelity used its own employees’ retirement savings to seed new funds and prop-up older funds that could not compete in the market without this critical seed capital.

According to the court documents, Fidelity also chose its own target date funds for its employees’ retirement plan over less expensive index-based target date funds. According to the complaint, these target date funds routinely under-performed target date funds offered by competitors and even some offered by Fidelity. Fidelity has been offering index-based target date funds since 2009, but, Bilewicz alleges in the complaint, kept its own employees’ retirement plan locked in high-priced, under-performing active target date funds so that it could continue to generate the high fees for Fidelity itself from active fund management.

Bilewicz also alleges in the complaint that Fidelity failed to move its employees’ retirement plan into low-cost institutional investment options managed by Pyramis, a Fidelity affiliate. Pyramis was established to provide low-cost institutional investment options to large retirement plans like Fidelity’s own $8 billion plan. Had Fidelity moved its 401(k) plan into low-cost Pyramis investments, Fidelity employees would have gained hundreds of millions of dollars in additional retirement savings from the lower fee charges, the complaint asserts.

Gregory Porter, one of the plaintiff’s counsel, commented, “the Fidelity 401(k) plan is one of the largest 401(k) plans in the country, but it’s being run like a small company plan. Instead of investing in low-cost institutional funds, the plan’s fiduciaries have put the plan in dozens of expensive mutual funds.”

For more information about this lawsuit, please visit http://fidelity401klawsuit.com/.

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Joshua Schwitzerlett
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