Fidelity Investments Challenged Over Use of ‘Float Income’

By Tim McLaughlin | March 8, 2013

Fidelity Investments, the largest U.S. provider of workplace retirement plans, is facing more accusations it improperly uses customer money earned in overnight accounts to pay its own operating expenses.

Three Massachusetts residents accused Boston-based Fidelity on Thursday of using income generated from retirement fund assets to offset Fidelity’s own operating expenses. Their lawsuit, filed in U.S. District Court in Massachusetts, seeks class-action status for participants in 401(k) plans sponsored by EMC Corp., Bank of America Corp. and Safety Insurance Co.

Fidelity denied any wrongdoing.

“We believe that the practices described in the lawsuit are consistent with the law and fair to all parties and that we provide valuable services to 401(k) clients for whom Fidelity serves as a record keeper and trustee,” Fidelity spokeswoman Jennifer Engle said.

The lawsuit follows a federal judge’s ruling last year involving a similar accusation that said Fidelity and ABB Inc violated federal law by causing ABB employees and retirees to pay excessive fees in their 401(k) plan.

U.S. District Judge Nanette Laughrey ruled last March that Fidelity and ABB, sponsor of the retirement plan, breached their fiduciary trust. She ordered manufacturer ABB to pay $35.2 million and Fidelity to pay $1.7 million for losses.

Judge Laughrey, from the Western District of Missouri, said in her order that ABB’s violation of fiduciary duties included its failure to monitor record keeping costs and to negotiate rebates from Fidelity on behalf of the retirement plan.

Fidelity breached its fiduciary duties to the plan when it used float income – interest earned from plan assets – to pay bank expenses that should have been borne by Fidelity, the judge said in her order.

Fidelity is appealing the judge’s decision, saying it was erroneous.

“In that case, Fidelity respectfully disagreed with the only finding against us, a technical violation that resulted in a monetary award of less than one half of one percent of the total damages sought by the plaintiffs,” Engle said. “All of the other claims made against Fidelity in the case were rejected by the court.”

In the latest lawsuit filed by Patricia Boudreau, Alex Gray and Bobby Negron, Fidelity is accused of improperly using interest income earned from contributions and disbursements temporarily held in overnight accounts.

The lawsuit said Fidelity improperly transferred float income earned from employee contributions to Fidelity mutual funds instead of keeping the money in employee plans.

 

 

Subscribe Insurance news headlines delivered to your email.
Get a free subscription to our popular email newsletter.

Latest Comments

  • March 8, 2013 at 6:23 pm
    Huh! says:
    Using the float income to enrich their own pockets is certainly a violation of fiduciary trust. Even if they are only "borrowing" the funds to meet expenses, it is wrong! Th... read more
  • March 8, 2013 at 11:36 am
    KK says:
    I guess that green line in their commercials takes money from my pocket and deposits into their accounts......Now they just need to add the arrow on the green line from me to ... read more
See all comments

Add a Comment

Your email address will not be published. Required fields are marked *

*

More News
More News Features