Lawsuits against Fidelity piling on

With Fidelity being under fire for “shelf space payments” from mutual fund companies to appear on their platform, it’s not surprising that ERISA litigators smell blood in the water like the sharks people think they are.


Three 401(k) plans sued Fidelity over these payments, claiming that the fee, which Fidelity characterizes as an “infrastructure fee,” increased fund expenses and wasn’t disclosed to 401(k) clients. The plans claim that’s a breach ERISA, which requires disclosure to plan sponsors of such marketing and distribution fees under ERISA Section 408(b)(2).


Years ago, I predicted that plan provider would develop new fees to offset the loss of revenue sharing and Fidelity’s own internal documents cite this as a reason for requiring payments from the mutual fund companies.


Fidelity is claiming that the practice of charging an infrastructure fee (or as I call it, “shelf space payments”) to certain mutual funds is because there is a cost for maintaining the systems and processes required for record keeping, trading and settlement, communications, and support for customers over the phone and online. They will also claim that the fee is not charged to plan sponsors or participants, so no disclosure is required.


While Fidelity may not have been required to disclose this to plan sponsor and plan participants and might win these cases on summary judgment, I believe that the Department of Labor will eventually close a loophole by suggesting that these payments should fall under the fee disclosure regulations because a plan provider (Fidelity) is receiving an indirect fee for their services.


It should also be noted that there is at least one other plan provider that does charge a “shelf space payment” and I’m sure you’ll hear about it when they get sued.



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