Fidelity fends off one FundsNetwork claim


Fidelity has been under fire for its FundsNetwork 401(k) offering. The FundsNetwork is where various mutual funds, affiliates of mutual funds, mutual fund advisors, sub-advisors, investment funds, including collective trusts, and other investment advisors, instruments or vehicles that are offered to the plans through Fidelity’s FundsNetwork pay Fidelity to be a part of the fund lineup.


A class-action lawsuit by a participant of T-Mobile’s 401(k) plan claimed the payments were “secret payments to Fidelity for its own benefit in the guise of ‘infrastructure’ payments or so-called relationship-level fees” in violation of ERISA’s prohibited transaction rules.” Fidelity isn’t the only bundled provider with this type of fund lineup where fund companies make payments to be a part of the network.


The case was thrown out because Fidelity wasn’t a fiduciary and there was no proof that these “shelf-space payments” increase participants’ costs. Shelf space payments aren’t OK with me, but it is a giant loophole through the fee disclosure rules because there is no nexus between these payments and costs charged directly or indirectly by any plan provider to the plan.


Shelf-space payments will continue to exist as long as the Department of Labor doesn’t close the loophole that allows it.

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