Fidelity Faces More Complaints about 'Float Income'

Thursday, 07 Mar 2013 06:23 PM

 

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

Three Massachusetts residents on Thursday accused Boston-based Fidelity 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 Company.

Fidelity was not immediately available to comment.

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.

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.

© 2014 Thomson/Reuters. All rights reserved.

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