Fidelity Fights Another Float Income Lawsuit

A year after not-quite-closing the book on one retirement-related lawsuit, Fidelity Investments is once again fighting allegations that it improperly used customers’ money earned in overnight accounts to pay its own operating expenses, Reuters reports.

Three Massachusetts-based residents, Patricia Boudreau, Alex Gray and Bobby Negron, accused Fidelity of using income generated from retirement fund assets to offset its 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 Company.

Specifically, Fidelity is accused of improperly using interest income earned from contributions and disbursements temporarily held in overnight accounts. The firm allegedly improperly transferred float income earned from employee contributions to Fidelity mutual funds instead of keeping the money in employee plans.

The current lawsuit follows another lawsuit (Tussey vs. ABB) in which U.S. District Judge Nanette Laughrey ruled that Fidelity and ABB Inc. violated federal law by causing ABB employees and retirees to pay excessive fees in their 401(k) plan. Judge Laughrey concluded that "Fidelity’s practice of misallocating float income—in violation of ERISA—did not just victimize the ABB PRISM Plans investor classes represented in that case: it harmed the entire population of Fidelity’s client retirement plans and investors, to whom Fidelity owed fiduciary duties under ERISA."

She ordered manufacturer ABB to pay $35.2 million and Fidelity to pay $1.7 million for losses.

“This suit is based on another case (Tussey vs. ABB) finding liability against Fidelity, which we believe is erroneous and are currently appealing,” said Jennifer Engle, a spokesperson for Fidelity, in an e-mail statement to Money Management Executive.

“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. We believe the ruling was in error and it is being appealed. All of the other claims made against Fidelity in the case were rejected by the court.”

Engle concluded that the firm’s practices described in the current 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 recordkeeper and trustee.”