Financial services giant Fidelity Investments, Inc. is in the news again, this time for allegedly mismanaging its company 401(k) plan. The Fidelity 401k lawsuit, filed on October 10th, 2018, alleges that the company engaged in self-dealing by loading its 401k fund line-up with proprietary products. The suit claims that these actions created a profit for Fidelity and other companies at the expense of employee participants.
Alleged Breach of Fiduciary Duty
According to the details of the case, in 2016 the Fidelity 401k plan contained 234 proprietary funds and zero non-propriety funds. Participating employees claim to have suffered losses of over $100 million per year more than average 401(k) plans due to high fund costs and poor performance of the funds offered in the plan.
This is not the first time the company has found itself in hot water based on similar allegations. In 2014, Fidelity faced an almost identical case which was settled for a sum of $12 million. This, coupled with the fact that Fidelity is one of the largest defined-benefit plan record keepers in the country, has fueled claims that the company should “know better,” and their current actions “particularly inexcusable.”
According to Fidelity spokesperson Michael Aalto, the company “strongly disputes” any wrongdoing and plans to “vigorously defend” themselves against the claims.
A Common Issue in the 401(k) Market
Fidelity Is not the only company to be accused of self-dealing within their employee’s 401(k) plans. Similar suits have also been brought up against Citigroup Inc., Wells Fargo & Company, Deutsche Bank, Putnam Investments, Capital Group, TIAA, New York Life Insurance Company, and Allianz. In each of these cases, the companies either settled or the courts ruled in favor of the plaintiffs.
The Fidelity 401k Lawsuit Highlights Concerns for Plan Sponsors
No matter how large or small your company, the allegations made in the Fidelity 401k Lawsuit and others like it should serve as a warning. Although your plan may not compare in size to Fidelity’s $15 billion 401(k), your responsibilities are the same.
Now is a good time to take a deeper dive into the fund line-up within your company’s plan. How many of the funds offered are proprietary? Are the fund costs reasonable? How have they performed? If you don’t know, you should. As a fiduciary on your plan, it’s your responsibility to ensure the investment offerings are appropriate and the expenses are reasonable. https://fs401k.com/many-business-owners-offering-401k-plans-fail-to-meet-their-fiduciary-duties/
Although, in general, there is nothing wrong with having proprietary funds in your 401(k) plan, you must have a good reason for choosing these funds and a documented fund-selection process. Choosing a conflict-free plan offers true transparency and makes your job easier. If you’re concerned about your ability to make these critical decisions on your own and would like to avoid additional liability, your best move is to hire an outsourced administrative fiduciary like FiduciaryShield. Contact us today to learn more about how we can help. https://fs401k.com/contact-us/