An appeals court has affirmed a ruling in a class action case dismissing an excessive-401(k)-fee suit against Fidelity. The suit arose when a participant in a 401(k) plan sued Fidelity, the plan provider, for allegedly charging an excessive fee to review certain documents at the request of the participant. Fidelity argued that at the time it negotiated a contract with the recordkeeper to provide services, it owed no fiduciary duty to plan participants. Instead, the recordkeeper had a fiduciary duty to plan participants regarding the fee schedule. The courts agreed that the recordkeeper, not Fidelity, had a fiduciary duty to plan participants regarding the price of services at the time Fidelity negotiated the contract. When Fidelity charged for the service under the terms of the contract, it was bound by that contract and could not unilaterally change the price of services rendered. The court held that Fidelity had a fiduciary duty to plan participants only with respect to its administration of plan services.
While the initial amount of money at stake was relatively small, it could have grown exponentially because the case was filed as a class action lawsuit. In a press release dated from when the suit was originally filed in May 2011, one of the law firms representing the plaintiff issued a press release saying the case could involve “potentially thousands of other retirement plan participants that used Fidelity as their qualified domestic relations order service provider.”
The ruling confirms that when a fund negotiates with plan sponsors, it does not thereby acquire a fiduciary duty to plan participants regarding the fee amounts. Instead, the fund holds a fiduciary duty to plan participants only in the administration of plan services.
The ruling can be found here.